From Joy M.: Hi Jason, I just signed up for your Palm Beach Trader newsletter—and I really like your system. I understand your clear explanations and trust your advice. I think you’re very knowledgeable and can guide us to the “promised land.”
However, some people believe this current bull market will only last another six to 12 months… and after that, we’ll enter a years-long bear market. Do you agree? And does your system also work in a bear market?
Thanks for your answers. I really appreciate it!
And thank you for writing in, Joy.
You’ll get to know pretty quickly that I’m an optimistic guy. I’m definitely not a perma-bear like many others out there.
However, I also know that fear and negativity sell more than hope and positivity. Sadly, it’s human nature. And the media takes advantage of it. They know fear-based headlines attract more viewers, listeners, and readers.
Fortunately, our marketing research suggests PBRG readers don’t respond to doomsday scenarios like those of other financial newsletters and the mainstream press. That means you’re now part of a sophisticated group of investors.
So welcome aboard, Joy. You made the right decision.
With that said, let me tell you why I’m still long-term bullish on the stock market…
Looking at the Data
I don’t make crystal ball predictions. I look at data and let that guide me.
And right now, the numbers look very good for the U.S. economy:
78% of companies reporting beat earnings.
59% of companies reporting beat sales estimates.
The S&P 500’s blended sales growth for the first quarter of 2019 was 5.3%.
And the S&P 500’s current price-to-earnings (P/E) ratio is 15.9. That’s nearly 4% below its five-year average of 16.5.
On top of positive sales and earnings growth, interest rates and taxes are at historic lows… Plus, the U.S. dollar is strong.
Meanwhile, Europe (Brexit fears), Asia (Middle East tensions), and Latin America (Venezuela’s collapse) face all types of political and market uncertainties.
These factors make the U.S. the most attractive destination for institutional capital right now. And most of that capital will flow into U.S. equities.
You see, the dividend yield on the S&P 500 is right around 2%, while the yield on the benchmark 10-year Treasury is 2.4%. But each is taxed differently.
Dividends are taxed at 23.8% (long-term capital gains). But bond income is taxed as ordinary income, and the maximum federal rate is 40.8%.
So if you’re a wealthy investor looking for income, you’d still do better owning stocks than bonds. The table below shows you’d end up with more money in your pocket with stocks at current yields…
|10-YEAR TREASURY (YIELD)||$100||2.08%||40.8%||$2.08||$0.85||$1.23|
|S&P 500 (DIVIDEND YIELD)||$100||2.00%||23.8%||$2.00||$0.48||$1.52|
After taxes, stocks are yielding 23.5% more than bonds. With few places where institutions can safely park their money and earn similar yields… this setup remains very bullish for stocks.
Pullbacks Are Buying Opportunities
I know we’re seeing a lot of volatility. But the truth is, the market always has ups and downs. And the data is indisputable: Over the last century, the market has continued climbing higher and higher…
So what does this mean?
Well, looking at the grand scheme of things, the market pulls back twice or so a year on wild headlines. And guess what? That’s what we’re right in the middle of now.
But I’ve sat through many noisy markets like this before—and it’s normal. I’m not worried. In fact, pullbacks like these are healthy.
If the market just goes up in a straight line, it’ll overheat… And you know what happens when a car engine overheats. It doesn’t end well for you or the car. So we need the occasional price correction.
Regular readers know my proprietary stock-picking system scans nearly 5,500 companies every day, tracking what the smart money is doing. And last Friday, I told you to brace yourselves because it was selling.
But I also said we’d see a near-term bounce—and boom… the market is up 3% since June 3. So you should consider pullbacks like this as buying opportunities for the best stocks.
Following the Smart Money in Bear Markets
Look, Joy… I understand how you feel.
The media will have you believe that trade war fears, impeachment talk, and rising nationalism and populism will derail the economy. However, the data suggests otherwise.
But for the sake of argument (and to answer your second question), let’s say we are entering a bear market. Would my system still work?
The answer is yes.
You see, even great stocks go down in bear markets. It makes it much harder to find profitable companies. But great stocks bounce back faster and higher when the market turns—while bad ones thud like rocks.
And you can really see what the smart money is doing in bear markets.
Wall Street has the brains, brawn, and budget to outsmart and outmuscle Main Street. It’s usually the first to know when the bear run gives way to the next bigger and longer bull run.
Trust me, I know. I spent decades trafficking billions of dollars for big institutions like Cantor Fitzgerald. That’s why I constantly watch what they’re doing. And for the foreseeable future, U.S. stocks are the best place for them to be in. That’s why we’re following them.
And here’s something else you should know about me: I’m a guy who enjoys the ride.
I like driving long distances—especially scenic routes along the beach with the top down on my convertible. I can’t get enough of the view. Sure, it takes longer to get to my destination, but the thrill is worth it.
The same logic applies to the stock market. The ride may be bumpy, but the destination will be much higher than you can imagine.
Editor, Palm Beach Trader
P.S. My former firm helped create the fastest high-speed trading system in Wall Street history. Now, my new, private system takes it one step further: In just 20 minutes, it allows me to spot America’s fastest-growing stocks up to 30 days before they soar. You can learn more about it right here…
Meanwhile, if you have any market questions for me, send them right here. Just remember, I can’t give personalized investment advice.