These are historic times for the economy. And historic times for the market.
One day, people will look back at this period in time and marvel at the historic opportunities of both.
And it’s easy to see why.
Our economy is strong with this year’s annual GDP pacing at 2.6% (which is faster than the average annual GDP of this entire expansion). Unemployment is near record lows. Consumer confidence is near record highs. Corporate earnings continue to impress. And household income is at the highest level in 20 years.
In addition, the Fed just cut interest rates, and there’s a good chance they’ll do it again before year’s end. Moreover, the ‘whole world’ is also cutting interest rates and pumping stimulus into their economies to support growth.
We are clearly in historic times. And historic times often produce record results.
We’re now 10½ years, and 349% into this bull market.
The longest bull market on record was 12.3 years for a 582% return.
Given all of the above, I believe these historic times will lead to a record breaking bull market in both length and magnitude.
And that means an historic opportunity for record profits.
So make sure you’re taking full advantage of it.
Continued . . .
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New Highs Lead To Even Higher Highs
After the markets put in their best first half performance in decades (Dow’s best in 20 years and the S&P’s best in 22 years), stocks soared even more, hitting new all-time highs in July.
There was a brief pullback shortly thereafter on the announcement of new tariffs on China. But stocks quickly rebounded as it was estimated that even if all of the tariffs went on, it would only have a limited impact on our GDP.
And now, stocks are essentially back to their all-time highs, and poised to go even higher.
This is important to note because statistics have shown that stocks making new highs have a tendency of making even higher highs.
In fact, using S&P price data going all the way back to the 1950’s, it shows that stocks typically go up in the subsequent six months following new all-time highs.
That means there’s a higher probability of stocks going up even further.
But Aren’t We Headed for a Recession?
We are not headed for a recession anytime soon.
While it’s true this is one of the longest economic expansions we’ve seen in history, the economy now is actually better than it was at the beginning of this recovery.
In fact, over the first 8 years of this recovery, the GDP averaged 1.48% annually. Granted, it was one of the weakest recoveries on record, but it was a fine enough recovery nonetheless, and the stock market picked up over a 240% return during that time.
But in spite of the expansion being one of the longest, the economy is actually gaining steam, not losing it. And that is almost unheard of at this late stage.
And that’s because of the historic deregulation we saw in 2017, and the historic corporate tax cuts we saw in 2018 (lowest corporate tax rate in 70 years), which has made the U.S. one of the most business friendly countries in the world. And that’s why the U.S. economy is the envy of the world right now.
These aren’t one-time stimulus packages that provide only temporary and modest economic benefits.
Instead, we’re talking about transformational growth due to long-term structural changes in how companies do business in America.
For example, in 2017, the annual GDP was 2.2% -- that was more than a 48.6% increase vs. the average GDP that preceded it.
2018 came in at 2.9%, nearly doubling (95.9%) that 1.48% average.
And so far in 2019, Q1, which is typically the weakest quarter of the year, grew at 3.1%. And Q2 came in at 2.0%. That puts full year GDP on track for 2.6%, well above the average that preceded it.
Now remember, a recession is defined as 2 quarters in a row of negative GDP.
The robust GDP growth listed above is not the hallmark of an impending recession. Quite the opposite.
And I cannot imagine a scenario that would cause our GDP to suddenly contract into negative territory. That includes the tariffs on China.
Simply put, our economy is strong. And you can see that in virtually every economic metric from an increasing GDP, to historic employment, to record consumer confidence, and surging corporate profits.
What About China?
High-level trade talks between the U.S. and China are set to resume in early October.
It’s clear both countries want a deal. And it could be argued that China wants/needs a deal more than the U.S., as China’s economy this year is growing at the slowest pace in nearly 30 years.
But, in all fairness, it’s a complicated matter. And while few are expecting a full-blown trade deal out of this next meeting, there’s plenty of optimism that a lessening of tensions or a ‘trade truce’ can be seen. And that could send the market soaring.
But if/when there is a trade deal, that should usher in years of additional growth and prosperity, and years of additional gains in the market.
But even if there wasn’t a deal, the numbers show the U.S. would be just fine.
It’s been estimated that if all of the tariffs went on, including the first $200 billion that are already in place, and the remaining $300 billion (which have all been postponed), it would only shave off four tenths to a half percent off of our GDP.
And with our economy on pace to grow at 2.6% this year, a half percent reduction is not going to hurt us. As I said before, we’d still be growing at a faster pace than the average annual GDP of this entire 10½ year expansion.
The Fed’s Got Our Back
Let’s also not forget the Fed.
They just cut interest rates by another quarter point. This was the second rate cut this year with the previous one (also a quarter point cut) taking place on July 31st.
The Fed also left the door open for another rate cut in October or December.
And in the Fed's policy statement, they reiterated that they would "act as appropriate to sustain the expansion" (i.e., cut rates further), echoing the same language as they did in July.
Fed Chair Jerome Powell expanded on this sentiment at his press conference by saying "if the economy does turn down, a more extensive series of rate cuts could be warranted."
But he maintained his positive outlook for the economy, and specifically noted that "the consumer part of it, is in strong shape."
And all of this is bullish for the economy and stocks.
History in the Making
This is truly an historic time in the economy and the market.
Historic times present historic opportunities.
And that means the opportunity for historic profits.
If you wished you would have traded the surge to new highs better than you did, now is your chance to do so on this next move up.
Don’t look back on this time and think about what you wished you would’ve done.
Do it now.
This is one for the ages.
And you’ll look back on this time with pride at what you’ve accomplished in your portfolio.
Do What Works
So how do you take advantage of this historic opportunity?
Just stick with tried and true methods that work.
That will help you find the stocks ready to go up the most.
For example, did you know that stocks with a Zacks Rank #1 Strong Buy have beaten the market in 26 of the last 31 years with an average annual return of 25.1% per year? That's nearly 2.5 x the S&P. But when doing this year after year, that can add up to a lot more than just two and a half times the returns.
And did you also know that stocks in the top 50% of Zacks Ranked Industries outperform those in the bottom 50% by a factor of 2 to 1? There's a reason why they say that half of a stock's price movement can be attributed to the group that it's in. Because it's true!
Those two things will give any investor a huge probability of success.
But you’re not there yet, as those two items alone will only narrow down a field of 10,000 stocks to the top 100 or so. Way too many to trade at once.
So the next step is to get that list down to the best 5-10 stocks that you can buy.
Proven Profitable Strategies
Picking the best stocks is a lot easier when there’s a proven, profitable method to do it.
Don’t squander this historic period with preventable mistakes.
By concentrating on what has proven to work in the past, you’ll have a better idea as to what your probability of success will be now and in the future.
Here are a few of my favorite strategies that have regularly crushed the market year after year.
New Highs: As mentioned earlier, studies have shown that stocks making new highs have a tendency of making even higher highs. And this strategy proves it. The alignment of positive price action and strong fundamentals creates all the necessary conditions to see these stocks soar to even greater heights. Over the last 19 years (2000 thru 2018), using a 1-week rebalance, the average annual return has been 48.8% vs. the S&P’s 4.8%, which is 10.2 x the market.
Filtered Zacks Rank5: This strategy leverages the Zacks Rank #1 Strong Buys, and adds two time-tested filters to narrow the list of stocks down to five high probability picks each week. Over the last 19 years (2000 thru 2018), using a 1-week rebalance, the average annual return has been 54.3%, which is 11.3 x the market.
Small-Cap Growth: Small-caps have historically outperformed the market time and time again. Often these are newer companies in the early part of their growth cycle, which is when they grow the fastest. This strategy combines the aggressive growth of small-caps with our special blend of growth and valuation metrics for explosive returns. Over the last 19 years (2000 thru 2018), using a 1-week rebalance, the average annual return has been 56.2%, beating the market by more than 11.7.x the returns.
The best part about these strategies (aside from the returns) is that all of the testing has already been done. There’s no guesswork involved. Just point and click and get your list of the best stocks for the week.
Where to Start
The first move to position yourself for historic gains is the easiest. And it doesn't cost a cent.
Try our Research Wizard stock-picking tool for the next 2 weeks free.
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Since 2000, the Top 10 strategies inside the Research Wizard have soared past the S&P 500's average of +4.8% per year. These 10 average more than +40% per year.
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Thanks and good trading.
Zacks EVP Kevin Matras is responsible for all of Zacks trading and investing services. He also developed many of Zacks' most powerful market-beating strategies that come with the Research Wizard.