The Future for U.S. Stocks has never been so brightStock-Markets / Stock Market 2017 Mar 19, 2017 - 04:20 AM GMT
Roy Bombardia writes: The U.S. stock market, as indicated by the S&P 500, is on the verge of a massive rally. This rally will be comparable to that of 1995 or 2013 when the S&P more than 30% in one year! Here's why.
This is the first time in 8 years in which literally every single market will go up
Let's take a short trip down memory lane.
2009 was the year in which the world came out of a massive recession. Equities and commodity markets around the world soared. This correlation caused the S&P to rally vigorously.
2010 was the year in which European problems (Greece) emerged.
2011 was the year in which more European problems (PIGS) emerged. In addition, the U.S. economy took a sudden dive in August, threatening a double dip recession.
2012 was another year in which the PIGS almost defaulted on their debt.
2013 was a year in which the Chinese and Eurozone economies slowed down.
2014 was a year in which almost all economies besides the U.S. slowed down. China, the Eurozone, commodity producers like Australia and Canada - they all went down. Oil prices and other commodities crashed.
2015 saw more global economic slowdown, oil continued to crash, and a Chinese stock market crash.
2016 saw Brexit, the Trump election.
Now fast forward to 2017, and there are literally no more uncertainties left! Political uncertainties have disappeared, Eurozone/China's economies are starting to grow again, commodities are rising (aiding commodity producing economies like Australia and Canada), and the U.S. economy is growing at a steady pace.
When all economies and markets go up together, the U.S. stock market will soar. This strong correlation will be a positive feedback loop for equities.
Only good federal policies ahead
Regardless of whether you like Trump, there's one thing that's certain. Trump is pro-growth on steroids.
At this point, it does not seem like Trump wants a trade war. Had he wanted a trade war, he would have started one weeks ago. Instead, he's spent the last few weeks meeting with foreign leaders for discussions on how to renegotiate trade deals.
All of Trump's future policies are good for the economy as a whole (although some individual groups such as Muslims and Mexicans may be adversely affected):
- Obamacare repeal
- Tax cuts
- Infrastructure spending
Although Obamacare is a boon to workers, it is a cost to business. Repealing Obamacare is better for corporate profits. Tax cuts don't need any explanation. Corporate tax cuts will leave corporations with more cash. They'll likely conduct stock buybacks, thereby pushing up equity prices. Infrastructure spending is a big one. Never before has a massive stimulus package been attempted while the economy is growing nicely. Fiscal stimulus during good economic conditions is like taking steroids: it's good for the economy in the medium term, but in the long term is bad (will cause high inflation).
The thing is, Trump doesn't need to accomplish all of his proposed policies for U.S. stocks to skyrocket. Any one of these policies will be a boon to the U.S. economy. Historically, U.S. stocks have not cared about HOW good or bad a policy is. The market only cares about whether a policy IS good or bad.
The short covering will be intense
A lot of short term traders are short the S&P right here. They believe that the S&P will fall at least 5%. However, the price action shows that these traders are wrong. Instead of the S&P making a correction as they predicted, the S&P is merely consolidating in a very narrow range. These narrow consolidations are very bullish: this pattern indicates that the market is ready for a break out.
Once the market breaks out, massive short covering will ensue. This short covering will cause the S&P to soar even more. A breakout will most likely occur when Congress passes "Trumpcare". Once the Senate passes this bill, markets already know that Trump will sign it.
Trumpcare is significant not just because it's the repeal of Obamacare. Trumpcare's passage will demonstrate how difficult it is to pass Republican-led legislation.
Bio: Roy Bombardia is the founder of Troubadour Capital, a privately held investment firm. You can follow him on Twitter @troubadourmodel
Copyright © 2017 Roy Bombardia - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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