The stock market has been stuck on a roller coaster for months now, zooming up and down ever since November’s U.S. presidential election.
But over the past few weeks, stocks have been experiencing a particularly painful rout, with the S&P 500 crashing more than 10%, the Nasdaq falling about 15%, and the Russell 2000 collapsing nearly 20%.
But amid this Wall Street chaos, we see a fantastic buying opportunity unfolding.
In fact, we think stocks may have bottomed this past week – and they could soar from here over the coming months.
There are four critical tenets to our bull thesis…
The Stock Market Is Washed Out, But the Economy Isn’t
First, things feel washed out.
As we mentioned, the major indices have taken a plunge, dropping between 10% and 20%. All three have now fallen into oversold territory.
Meanwhile, valuations on a lot of individual stocks have dropped to 2- or 5-year lows. The University of Michigan’s Consumer Sentiment Index has crashed to one of its lowest levels in the last 50 years. And investor sentiment in the American Association of Individual Investors’ (AAII) weekly survey has only been this consistently bearish once before – back in March 2009.
Across the board, things are just really washed out. When conditions are this dour, stocks can rebound furiously as they climb the proverbial ‘wall of worry.’
Second, the economic reality is not so bleak.
We understand Americans’ concerns about tariffs, federal spending cuts, policy uncertainty, and their potential impacts on consumer spending and business investment.
But as of now, at least, those impacts are still contained.
As we noted in yesterday’s issue, U.S. gross domestic product (GDP) growth is still positive at 2.3%. Consumer spending is steady. Unemployment is low at 4.1%. Inflation is falling, currently hovering around 2.8%. At about 4.3%, according to the Federal Reserve Bank of Atlanta, wage growth is strong and running above inflation. And as the fourth-quarter earnings season illustrated, corporate profits are still growing, with more than 75% of the S&P 500 exceeding consensus estimates.
So… sentiment and market conditions are washed out, but the economy is not. This divergence is not sustainable.
Either the economy becomes just as washed out, or sentiment and market conditions rebound. We don’t see the economy nose-diving anytime soon, and therefore, we think a rebound is coming.
Calling the Bottom
Third, multiple technical signals suggest this could be the bottom for stocks, as we’ve detailed over the past week.
The Nasdaq 100 just fell below its 200-day moving average for the first time in a year. Similarly, the S&P 500 dropped below its 250-day moving average for the first time in a year. The market has become oversold, again for the first time in a year.
All this happened this past week. And historically speaking, when these things have occurred before, the market usually went on to soar over the next 12 months, so long as stocks stabilized around these major technical levels…
Which also happened this week.
The S&P 500 fell multiple times toward the ultra-critical 5,500 level and never gave it up. It bounced every time. This past Tuesday, it bounced right above there and then did so again multiple times on Thursday. Then, stocks soared on Friday and – as of this writing – the S&P retook its 250-day moving average.
Stocks are stabilizing exactly where they should. From a technical perspective, that tells us that the market has found a bottom and that stocks will soar over the next few months.
We See Stock Market Stability Ahead
Finally, we see a pathway toward increased political stability in the coming months.
The more we dissect the seemingly endless parade of developments from Washington, the more we think that the Trump administration is purposefully front-loading this political chaos.
That is, we think D.C. is focusing so hard on tariffs and federal spending cuts right now to essentially get them out of the way, thereby setting the stage to refocus its attention on a massive tax cut package and more deregulation.
Now, we could be wrong about that. But that’s our working thesis. Trump promised tariffs and federal spending cuts all along the campaign trail. He’s delivering on that right now.
He also promised tax cuts and deregulation. He’ll deliver on that next. Get the tough stuff out of the way first to get the fun stuff done later without distraction.
That’s why, generally speaking, we think stocks have bottomed. The market seems primed for a huge rebound, which means now is likely a great time to be buying stocks.
The Final Word
Of course, if the fundamental and technical data shifts in the coming days or weeks, we will adjust our thesis. But as of right now, we’re feeling bullish.
As I told my team yesterday…
This just isn’t the “big one” – the bubble-popping recession that will send the economy into a 2008-like tailspin and cause a massive market crash.
That major meltdown will come. But we don’t think that’s happening yet.
And if the rout we’re seeing now isn’t the “big one,” then this is a great buying opportunity.
But where should folks look for the best stocks to buy now?
Well, it’s no secret that we’re bullish on AI – the greatest technological revolution in three decades.
This breakthrough has already created fabulous investment opportunities, allowing investors to lock in ~990% gains in Palantir (PLTR) and 400% profits in Nvidia (NVDA) over the past two years. And so much more is yet to come.
But here’s the challenge: the broader AI trade is crowded. That’s why we’ve been hunting for the next big industry breakthrough…
And we’ve found it in what I call AI 2.0 – a development that could be an order of magnitude bigger than anything we’ve seen in the AI Boom so far.
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.
