Two bold predictions for 2018
From Justin Brill, Editor, Stansberry Digest:
It has never happened before…
The benchmark S&P 500 Index closed 2017 at 2,673.61. This was good for a gain of roughly 1% in December. But it also marked an unprecedented feat…
You see, 2017 was the first year in history where U.S. stocks ended every single month in the green. Only three other years – 1958, 1995, and 2006, which each had 11 positive months – have even come close.
All told, the S&P 500 rallied 19.4% for the full year. Including dividends, U.S. stocks returned nearly 22% in 2017, among the best annual gains in history.
In short, our colleague Steve Sjuggerud was right again…
DailyWealth readers know Steve has been one of the most outspoken bulls over the past nine years. He was among the first analysts anywhere to turn bullish on U.S. stocks back in 2009. And he has reaffirmed his bullish stance again and again as stocks have soared to new highs.
Around this time last year, many folks were worried that the end of the bull market was near. But Steve disagreed… He told readers 2017 was likely to be another great year for stocks. As he explained in the January 9, 2017 DailyWealth…
“I remember when the Dow hit 1,000, and then 2,000,” a friend in his 70s told me last month at lunch. “Now the Dow’s near 20,000. That’s scary.”
This friend is no dummy… He founded a major corporation that traded on the stock market. He had tens of thousands of employees. His net worth hit nine figures.
And he’s scared. I get that… We’re in uncharted territory. But I have a positive message today: Stocks can go much higher this year.
So what is Steve thinking today? He shared his thoughts on U.S. stocks with his True Wealth Systems subscribers just before the holidays…
I’ve remained bullish on U.S. stocks for years. Folks have found plenty of reasons to sell along the way. But my advice has been to stay long. The trend has consistently been up and investors haven’t been excited to own stocks during this boom.
That second point is changing, though. Today, we’re seeing extreme optimism from the National Association of Active Investment Managers (NAAIM) Exposure Index.
If you’re not familiar, this index surveys hedge-fund and mutual-fund managers to see how they feel about the market. A rating of zero means managers own no stocks. And a rating of 100 means managers are fully invested.
And they recently became as bullish as they’ve been in years. More from Steve…
[The December 13] reading was the highest since the survey started in 2006… a level of 109. That means investment managers have fully invested and then some – they’re buying with leverage. Take a look…
The NAAIM Exposure Index hit a record level of 109 [on December 13]. Before that, this index had only broken above 100 five other times.
As Steve explained, this is a clear sign that investors are getting excited about stocks again… And investment managers, in particular, are making a big bet on stocks.
But he also noted that this isn’t a reason to sell. In fact, history says the opposite… Buying after each of these other similar extremes would have led to double-digit gains in one year or less.
Of course, this is a relatively small sample size… And Steve would never recommend making investment decisions based on any single indicator alone. But alongside the other indicators he’s following closely, it’s one more sign that the long bull market has further to run…
My advice to stay long into 2018 isn’t solely because of this extreme. But learning that similar bullish levels haven’t killed this bull market is good to know.
The truth is that we’re in the later innings of a historic bull market. And while extreme optimism seems like a reason to be cautious, history says it’s not a reason to sell.
The trend is still firmly in place. And until that changes, my advice won’t change. Stay long U.S. stocks into 2018.
That’s not the only bold prediction Steve is making for 2018…
He also believes this year could bring the first significant rise in long-term interest rates in years. Steve’s senior analyst Brett Eversole wrote about this idea earlier this week.
As Brett noted, economists have been wrong about long-term interest rates rising for decades. But he explained one major reason why it could actually happen this time.
You see, the latest Commitment of Traders (“COT”) report shows that speculative traders are more bullish on U.S. Treasury bonds than almost any other time in history. Because bond prices and interest rates trade inversely, these record bets mean these traders are also betting heavily on lower long-term rates.
Unfortunately, the last time this happened, it didn’t work out so well for them. In mid-2016, traders all expected lower rates. Instead, the 30-year yield rose around 1% in less than six months. That’s a major move higher for rates (and lower for Treasury bond prices).
Brett noted that we have the same setup today.
A similar move this time would push long-term rates to 4% or higher…
As you can see in the following chart, this would create the first uptrend of higher lows and higher highs in decades… and would likely signal an official end to the nearly 40-year bull market in bonds…
This obviously wouldn’t be great news for owners of long-term government bonds. But it could be a boon for stocks – at least in the near term.
You see, while higher interest rates will eventually lead to serious problems for our debt-driven economy, rising long-term rates should initially ease the falling yield curve we’ve been following.
Barring an unexpected market shock, this could delay the next recession even longer.
Our advice remains the same…
Stay long stocks… But be sure to protect your capital with good risk-management strategies, like conservative position sizing and trailing-stop losses. And hold some cash and gold, just in case.
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