7 Reasons The Market Will Keep Blasting Higher
The recent stock market volatility has many investors questioning the wisdom of being bullish on the stock market. Massive point swings and the soaring CBOE Volatility Index (VIX) have placed fear deep inside the hearts of long-term stock investors.
Should you be concerned about the newfound bearish market action? Is it time to sell and move into different asset classes? Or is every dip another buying opportunity?
My research discovered there is no reason to be concerned just yet.
#-ad_banner-#I welcome the volatility and strongly think every market dip is a new buying opportunity — at least until August 2018.
1. Monetary Easing Worked
I don’t want to bore you with facts and figures so I will paint with a broad brush.
The massive quantitative easing program implemented after the financial crisis of 2008 has worked its magic. The economy has been kick-started and is currently expanding under its power.
In fact, growth has been so impressive the Federal Reserve has started to raise rates, which is one of the reasons for the recent volatility.
I view gentle rate increases as bullish as they signal a strong economy for the future. To be sure, the initial shock of Fed rate increase chatter or action often sends stocks reeling. However, history has proven these “rate fear” selloffs are excellent buying opportunities.
Also, rate increases actually help primary drivers of the economy such as the financial sector.
As long as the Fed continues with its controlled, forewarned rate increase program, there is nothing to fear!
2. Corporate Tax Cuts
Love him or hate him, Donald Trump’s tax-cutting initiatives are incredibly bullish. The reduction in revenue taxation will result in improvement on both the top and bottom lines on corporate balance sheets. Not to mention the fact that the newfound cash will likely be used for stock buyback programs and to increase dividends payments.
3. Global Economic Growth
The United States is not the only country in an expansion phase. In fact, the rest of the developed world is experiencing stable economic growth. The world economy is expected to grow at 4% in 2018. In our connected economy, the increase is hugely bullish for the United States. To be sure, the U.S. economy is only expected to modestly expand at 2.4% in 2018. But when combined with the global picture, it remains very bullish for the equity market.
The world’s second-largest economy beat growth estimates in 2017 with a 6.9% growth rate. China, being a planned economy, has forecasted similar growth for the next five years. While under the incredible growth levels of the past, the growth rate remains very pro-global growth.
The International Monetary Fund (IMF) supports China’s internal GDP growth projections with the expansion of 6.6% in 2018, up from the 6.5% prediction made last October.
Furthering the bullish outlook, this is the fifth IMF increase of Chinese economic growth prospects in two years.
5. Institutional Money Flows
In January 2018, hedge funds posted the best capital inflows since before the financial crisis. $14 billion of new money flowed into hedge funds during the month helping to fuel the bullish fever.
During the same time frame, nearly $60 billion of fresh capital was poured into equity funds and exchanged-traded funds (ETFs).
U.S. funds led the pack with the sharpest money increases, posting $6.4 billion for a single week in January. Other economies such as Japan attracted nearly $4 billion. U.S. large-cap funds were the most substantial beneficiary by style, with $6.5 billion of inflows, per a Bank of America report.
Breaking it down by sector, financials grew by $1.6 billion, while technology and energy took in $700 million each.
The adage “follow the money” rings very true when it comes to forecasting future market direction!
6. Inflation Fears Controlled
One of the biggest threats to the growing economy is runaway inflation. The Federal Reserve is doing an excellent job controlling the fine line between inflation and aggressive growth. As long as there are no systematic shocks, inflation should remain under control. I firmly believe that the Fed has learned from its past mistakes and will keep dangerous, runaway inflation at bay.
7. A Massive Uptrend
Take a look at any long-term stock chart. The U.S. equity markets have been on a long-term upward trend since their inception. The uptrend has only been accelerating since the financial crisis of 2008. Any pullback, like the one we just saw, has been quickly bought, with the stocks moving to new highs.
If history is any guide, we may see new all-time highs this summer!
Risks To Consider: Many experts believe the stock market is seriously overheated. While I expect new highs soon, the months of August, September and October may see aggressive selling as investors scramble to lock in profits.
Action To Take: History and the economy are on your side. Buy every dip until August 2018, then we will evaluate our next move.
Editor’s Note: Don’t Miss The Top 10 Stocks for 2018
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