The Fed’s Decision Won’t End This Bull Market
Legendary investor John Templeton had a simple explanation for the cycle of bull markets, saying they are “born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
At 2,800-plus days and counting, the current bull market, which was born from the ashes of the 2008-2009 financial crises and has been the second-longest in history, seems to be exiting the skepticism stage and entering the optimism stage.
Longtime subscribers of my premium investing service, Maximum Profit, know that I was very skeptical of how much longer the bull market would last at the beginning of the year. I cited slow economic growth, declining earnings in S&P 500 companies’ earnings, and the fact that my proprietary momentum-based investing system was finding very few companies that had the cash flow growth needed to warrant a “buy” signal under my system’s rules.
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I wasn’t the only skeptical one. Many respected, very successful hedge fund managers were pessimistic on the market.
But those attitudes are slowly changing…
Just last month, a few of the world’s most respected investors issued bullish statements regarding the equity market.
Legendary hedge fund manager Stanley Druckenmiller (who famously earned 30% average annual returns over his career without a single losing year) recently told financial news network CNBC that he was suddenly bullish on the economy for the first time in years.
Then, Ray Dalio — founder of Bridgewater Associates, the world’s largest hedge fund — and Steve Schwarzman — CEO of private-equity firm Blackstone Group — both echoed a similar sentiment.
The icing on the cake came last Wednesday when the Federal Reserve made the decision to raise interest rates for only the second time since cutting them to near zero in 2008.
I know the traditional argument says stock prices and interest rates are inversely correlated. In other words, as interest rates rise, bonds become more attractive relative to stocks, thus causing investors to rotate out of stocks and into bonds.
But history tells a different story…
Looking back over the last 25 years, the Fed has had three major periods of rising interest rates — 1994, 1999 and 2004. But instead of the market tanking as rates rose, it did the exact opposite.
So don’t let the fact that we’re heading into the eighth year of this bull market deter you from buying stocks. Historically, the Maximum Profit system has done an excellent job of signaling when the timing is right to move to more conservative investments — after all, that’s what it’s designed to do. But right now, it’s indicating that all systems are a go.
Just last week, the system flagged a company whose name you may not recognize, but whose products are used all around us — in our vehicles, wireless systems and even healthcare. When the company’s fiscal year ended at the end of October it had generated 41% more cash flow than the prior year. It has more than 20,000 products servicing over 100,000 customers. Its customer base includes the likes of Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), Lockheed Martin (NYSE: LMT) and Rolls-Royce.
#-ad_banner-#To make room for this new pick, my system flagged two stocks in my main portfolio that have dropped below my sell signal, indicating it’s time to take our gains in those stocks and move on.
Along with this pick, I also added two other stocks — one small-cap oil company that takes old oil fields and “revitalizes” them, and one international manufacturing company with a collection of market-leading brands that’s propelled its share price to new heights.
Any way you slice it, the Maximum Profit system is signaling that the tailwinds for these stocks are just getting started. So if you’re like a lot of investors I know who feel like they’ve missed out a bit on the bull market by keeping too much cash on the sidelines, it’s not too late. If John Templeton was right, it seems we’re just now entering the mature “optimism” phase of the market cycle.
That means there are still plenty of gains to be had before the bull market dies in the euphoria phase.
P.S. As I mentioned, it’s not too late to get in on the last legs of this bull market. So why not put a proven, tested system to work for you? My proprietary Maximum Profit system is designed only to identify the strongest stocks in the market — before they take off. Using this, my subscribers and I have made gains of 82% in 48 days, 118% in 86 days, 266% in 12 months — and more. To learn more about my service, follow this link.