Right Now the Market Is Repeating a Scenario that Happened Just Before a Massive 12-Month Triple-Digit Boom in Tech Stocks
Politics and investing don’t mix…
It’s often tough to separate the two, though. Most folks have strong political opinions. And it’s easy to drag those into your investments.
If you’re a green energy activist, you might love the idea of solar energy. You might have chosen to back your political idea with your investment capital.
But if you’d bought First Solar (FSLR) – an industry leader – at the stock market bottom in 2009, you wouldn’t be sitting on massive profits today. Instead, you’d have lost more than half of your initial investment.
And it goes both ways. If your political interests aligned with fossil fuels, you might have invested in the coal industry. That again, would have been a bad investment decision based on politics. The entire coal sector is down around 70% since 2011.
The simple truth is that you don’t want to make individual investment decisions based on your political beliefs. It clouds your judgment and makes it hard to see mistakes.
Still, from a high level, politics has a huge impact on your investments. We can learn a lot about the market based on major long-term political cycles.
That brings us to the good news…
Stocks are about to boom – for as long as two years – thanks to our current position in the presidential election cycle.
It won’t be because of President Donald Trump’s next tweet or a piece of legislation. Instead, it all comes down to the lessons of history we’ve learned from elections.
You see, from a high level, politics does have a surprisingly large effect on financial markets…
I never would have believed just how powerful an influence politics has on the markets if I hadn’t crunched the numbers myself. And the conclusions are even more surprising…
For example, stocks tend to perform better when Democrats are in office. Since 1928, the benchmark S&P 500 Index has risen roughly 9% a year (not including dividends) when Democrats have held the Oval Office. Stocks have increased just 2% a year when Republicans have held office.
That’s a great example of what I’m talking about – the result is far outside of any statistical norms. It’s an extreme result, any way you look at it.
But something else has an even bigger influence on stock returns than which party is in office…
It turns out that the most important factor around presidents and stock prices isn’t which party is in office, but what point we are at in a given president’s term.
We call this powerful idea the “election-cycle indicator.” The conclusion from this indicator is: Stocks tend to perform best at the end of a president’s four-year term… regardless of which party is in power.
The table below shows how extreme this phenomenon has been, going back to 1950. Take a look at the chart…
As you can see, the biggest gains in stocks happen during the third and fourth years…
And we’ve seen typical gains of more than 20% during the third year. That’s an incredible result.
(We use quarterly data in this analysis, using September 30 as “year end.” Based on that, we just entered the third year of President Trump’s first term.)
Interestingly, these results hold up during both Democrat and Republican presidencies. It doesn’t matter what party is in office… The election-cycle year tends to determine how well stocks perform.
Again, this is good news right now. We’re just weeks into the third year of Trump’s term. And based on this indicator, we could be in for two years of fantastic gains.
The third year has historically been the strongest, by far. And year four has been the third-strongest. This is a great sign going forward.
Of course, it’s not foolproof. The caveat here is that these data have plenty of variability. Stocks have soared as much as 39% during year three… But they’ve also fallen as much as 48%.
Still, the message from this indicator is powerful:
We’re now entering the absolute best period of time to own stocks. We could see two years of fantastic profits thanks to this odd election-cycle indicator.
This works out well with another big theme I’ve been tracking too… The “Melt Up” in U.S. stocks.
Let me quickly explain what that is… Why I’m sure it’s underway right now… And what it means for your money in months ahead…
The Melt Up Officially Arrives
The Melt Up, if you don’t already know, is big news.
It’s also a bit tough for some folks to get their heads around. The idea of a massive blow-off top in stocks, after the run we’ve already seen.
After all, we’re nearly a decade into the U.S. bull market. But I assure you, you haven’t missed it.
The biggest and most explosive gains of this bull market are yet to come.
The opportunity is thanks to the Melt Up, which is based on a simple premise.
Stocks often have their biggest, most explosive gains at the ends of major bull markets.
In short, before the big “Melt Down” arrives, we have the big Melt Up. It’s the final push higher before the bear market kicks in.
The most recent major example of this happened at the end of the 1990s bull market. The Nasdaq Composite Index soared more than 86% in 1999 alone. Now that was a Melt Up.
Today, I believe we’re in a similar situation in the current bull market. The final stage of the Melt Up in U.S. stocks is here. It’s officially underway.
Today’s market is beginning to look a lot like the late 1990s.
I say that because today’s market is beginning to look a lot like the late 1990s…
You see, back then the entire market had soared through the ‘90s. The old fuddy-duddy companies made huge gains right alongside the exciting new Internet stocks. But that changed as the bull market neared its end and the Melt Up took over.
Just take a look at the chart below. It shows the last 12 months of the 1990s bull market. And you can see that the fuddy-duddy companies (the Dow Jones Industrial Average) stopped keeping up with the exciting tech companies (the Nasdaq). Take a look…
The Dow basically went nowhere for the final 12 months of this stock market Melt Up, while tech stocks soared more than 100%.
The beginning of that major outperformance is what signaled the Melt Up getting fully underway. And now, that’s happening again.
Until recently, boring stocks and exciting tech stocks had soared together. The tide of recent years has lifted all ships. You can see it in the chart below…
From late 2016 to early 2018, the old fuddy-duddy stocks have tracked nearly perfectly with the exciting tech sector.
Heck, these boring businesses even outperformed for a good chunk of that time. But you might notice that the chart above ends in April. That’s because things have changed in recent months. We’ve seen a major shift in performance.
The exciting tech stocks are finally crushing the boring fuddy-duddy businesses. Take a look at this chart…
This is big news.
Since early April, the Nasdaq has dramatically outperformed the Dow. And it’s hit new all-time highs along the way.
This is exactly what we saw in the late 1990s. It’s what signaled the final stages of the Melt Up back then… and it’s what happened right before a massive triple-digit boom in tech stocks in just 12 months.
This is it. The Melt Up is officially underway. The final stage of this bull market is likely to play out over the next 12 to 18 months as a result.
The takeaway is obvious. You want to own U.S. stocks right now. Specifically, you want to own exciting U.S. tech stocks. You want to own the Nasdaq.
One way to do it is with the Invesco QQQ Trust (QQQ). The fund tracks the Nasdaq 100 Index, which holds 100 of the largest companies on the Nasdaq Composite
(and moves almost identically to the
Nasdaq Composite). QQQ is a simple way
to get into this opportunity. And it’s a smart bet, now that the Melt Up is fully in place.
The biggest gains of a bull market tend to happen in the Melt Up phase. You want to stay invested now. We still have plenty of upside ahead.
We’re now entering the absolute best period of time to own stocks. We could see two years of fantastic profits thanks to this odd election-cycle indicator.
Importantly, this lines up with 70 years of election cycle data, too. Remember, we’re now entering the third year of President Trump’s first term.
Based on history, this is when the largest gains could happen. We could see 20%-plus gains over the next year based on that indicator alone. And with the Melt Up in place, the upside could be even greater.
We have plenty of opportunity ahead of us. You want to own the Nasdaq and shares of QQQ right now to take advantage of it. Don’t miss out.
Dr. Steve Sjuggerud holds an MBA and a PhD in finance. He’s worked as a stockbroker, vice president of a global mutual fund, and a hedge-fund manager. His track record has landed him on various television networks including stints on Fox Business News, Bloomberg’s Taking Stock, and CNBC, among others.
He debuted his “Melt Up” thesis in October 2015. And today, Steve thinks we’re in the final innings of the Melt Up. The next few months will be unlike anything we’ve ever seen. If you’re interested in learning more about the best places to invest during this final, incredible rally, click here to RSVP for a free educational webinar on October 24.
