Editor’s note: “An Outperforming Investment Tool to Help You Game the Market” was previously published in January 2025 with the title, “Introducing: An Outperforming Investment Tool to Help You Game the Market.” It has since been updated to include the most relevant information available.
For the past several months, since it became clear that Donald Trump won the U.S. presidential election, the stock market has been highly volatile.
The S&P 500 rallied 4% in the week after the election – only to crash 3% the following week. Then stocks rose 4% into December just to sink 5% by the month’s end… popped 6% higher in mid-January before dropping 3% after the inauguration. And here in February, stocks gained 4% in the first few weeks of the month, then flopped about 4% over the past week.
Wall Street has been stuck on a roller-coaster ride since early November.
With all this volatility, investors are dying to know what the next four years will look like for stocks under “Trump 2.0.” Is this unpredictability the new normal?
Possibly…
I have six words of advice for this era: embrace the boom, beware the bust.
Embrace the Boom; Beware the Bust
Thanks in large part to the AI investment megatrend and long-awaited rate cuts from the Federal Reserve, the U.S. stock market has been booming for the past two years.
That is, the craze around artificial intelligence has sparked an exceptional surge in investment. Companies have been racing to create the infrastructure necessary to support next-gen AI. Indeed, Meta (META), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL) – pretty much all the world’s major tech companies continue to spend billions upon billions of dollars to build new AI data centers, create new applications, hire more engineers, etc. And all that investment has created a major economic boom.
Meanwhile, throughout 2022 – after embarking on the most aggressive rate-hiking cycle in nearly 50 years – the Federal Reserve finally slowed its pace of hikes. And here in 2024, the central bank actually started to cut rates. This has provided much-needed relief to consumers looking to finance big purchases and businesses looking to make new investments. This relief has also helped support an economic boom.
The result? Stocks have been soaring for two years.
Since hitting its lows in October 2022 – just over two years ago – the S&P has surged more than 70% higher. In fact, it just posted its second consecutive year of 20%-plus gains.
The index rose 24% in 2023. It popped another 23% in ’24. That is just the fourth time since the Great Depression – nearly 100 years ago – that the S&P 500 rallied more than 20% in back-to-back years.
We are unequivocally in a stock market boom.
And in our view, this boom is about to get even ‘boomier.’
Why We See Stock Market Bullishness In Our Future
Thanks to Donald Trump’s victory and Republicans’ newfound control of Congress, a wave of deregulation, pro-business policies, and tax cuts are likely to sweep the nation over the next few years. Those dynamics will only add to the current economic boom.
Indeed, this is already happening. In his first month in office, President Trump has already signed executive orders to deregulate the energy industry, announced big new growth initiatives like Stargate (which will pour $500 billion into AI infrastructure over the next four years), and talked about enacting more tax cuts.
Sounds great, doesn’t it?
Sure does – so long as you remember that all market booms inevitably end with busts. It is not a question of “if.” It is simply a question of “when.”
As we mentioned before, the stock market just notched back-to-back years of 20%-plus gains. It has only done that three times before: in 1935/36, 1954/55, and 1995/96.
After the two boom years in 1935 and ‘36, stocks immediately crashed about 40% in 1937. That boom turned into a bust almost immediately.
Following the market boom in 1954 and ‘55, stocks went flat in ‘56, then dropped 15% in 1957. The boom turned into a bust after about a year.
Similarly, post-1995/96, stocks kept partying throughout 1997, ‘98, and ‘99 – only to crash about 50% throughout 2000, ‘01, and ‘02. After about three years, that era’s big boom turned into a big bust as well.
All booms of this nature turn into busts. It is simply a matter of timing.
Does that mean you should get out of stocks and run for the hills now to avoid the inevitable meltdown?
The Final Word on Gaining a Stock Market Edge
Usually, the last 30 minutes of a movie is the best part of the film. The last episode of a TV show is almost always the best one, just as the last few minutes of a ballgame are normally the most exciting.
Similarly, the last few years of a stock market boom can often be the most profitable.
Just consider the Dot Com Boom of the 1990s.
Tech stocks had some amazing years therein. The Nasdaq Composite rallied 40% in 1995, about 20% in ‘96, another 20% in ‘97, and then 40% again in ‘98. But tech stocks saved their best for last, with the Nasdaq soaring almost 90% for its best year ever in 1999.
Then the bust started in 2000.
Point being: The best year for tech stocks in the ‘90s was the final year of the Dot Com Boom.
That’s why you don’t want to leave a stock market party early. But you also don’t want to leave too late.
So, what’s an investor to do?
Embrace the boom. Beware the bust. Ride stocks higher, then head for the exits when the warning signs appear.
Of course, that’s much easier said than done, I know.
That’s why we created Auspex: a stock screener that scans about ~14,000 stocks every time we run the model. It’s designed to help us uncover the stocks most likely to rise over the next 30 days, highlighting only those with favorable fundamental, technical, and optical characteristics. And typically, only a few make each final cut.
After a manual evaluation from my team, those stocks become our “Auspex picks” for that month. Then, we do it all over again the next month.
In fact, in just a few days, we’ll be running our next scan to identify the top stocks to buy for March.
Click here to gain access to those picks before we release them on Monday.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
