- The United States is still in a strong stock bull market and it is not logical to be bearish when in a bull market.
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Q2 hedge fund letters, conference, scoops etc
- Many of the world’s stock markets are very weak relative to the much stronger United States.
- These foreign markets are currently weak for legitimate reasons.
- And no matter how one looks at it, the U.S. stock market is not overvalued.
- So, MarketCycle’s stock allocation is most heavily positioned in U.S. stocks and late-stage assets.
- All signs point to the U.S. being in the late-stage of the current bull market. The earliest of economic indicators (home construction, lumber prices and home prices) have already signaled that we should be alert for fairly severe stock market problems on the far distant horizon.
- The U.S. is not in an economic recession and we are still nowhere near being in recession. A recession is when the economy is so weak that it causes a severe downturn of around 33-50% that lasts for around one year; it is important to sidestep this and to re-position portfolios to profit during this period. The chance of a recession (in the United States) two months out is still @ 3% and this is ridiculously low, so any near-term turmoil should be shallow and fairly short in duration.
- The upside for this U.S. stock bull market is likely to be strong over the next year. The final six months of the bull may result in an extremely profitable melt-up in stock prices, so this is not to be missed by investors.
- Market internals are extremely strong for the U.S. stock market. (Market internals are those things that show the strength or weakness of the market itself.)
- Fundamentals are also extremely strong for U.S. stocks. (The economy is strong.)
- U.S. Treasury-bonds normally give a portfolio some ballast when stock prices are falling, however with the Federal Reserve raising rates, this makes them less profitable during periods that are bullish for stocks. A better source of portfolio protection may come from consumer-staples momentum stocks, floating-rate commercial REITs, socially-responsible (high quality) corporate bonds and also certain ETF products that hold protective puts of various types.
- In anticipation of the next recession, U.S. stocks will turn down months before the next economic recession hits us. At that point, and not before, it will be important to protect portfolios and re-position in order to profit off of the potential 33-50% stock market fall. If positioned properly, it is possible to make superior and rapid lower-risk profits during an economic recession.
- After the next economic recession is over (and it may last for up to one year), then investors will need to move back into the market with strength. The first two years off of this bottom will likely be extremely profitable and also lower risk since the stock market will have already sold off.
- Overall, my opinion is that the next 4 years may be very profitable for trend followers that are not biased as to the trend direction of the markets and that are not fearful at the market bottom (when most other investors will take a fear-based “wait-and-see” approach).
- Of additional interest, U.S. home prices may continue to drop from here and then not recover for several years (at the same time that interest rates may be falling). In my opinion, this makes a future purchase a better investment opportunity than would be a near-term purchase at current inflated prices.
SUMMARY: The United States is still in a stock bull market and it is actually strengthening rather than becoming dangerous and weak, as some believe. The next 4 years of market movement (of up, down, up and up) may be very profitable for those using the techniques of trend following and relative strength and it should present with reduced risk for much of that time… a nice combination and one to be taken advantage of. IMO, people should delay gratification for a few years, delay spending, and shift their money toward their investment account in order to take advantage of this potential 4 year opportunity.
Right now I am sitting looking out at the Atlantic Ocean. (Those are neighbors in the photo.) I have a lot of clients in New England; anyone that wants to meet should contact me via: 1-800-MWM-8635 and I’m here until early September.
Thank you for reading!
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Article by Stephen Aust, MarketCycle Wealth Management
