When we first released this forecast in our newsletter in May 2010 and published it in the Stock Trader’s Almanac 2011 with the Dow around 10,000 it was received with a great deal of incredulity. Since then the market has tracked it in principle yet outpaced our initial expectations. This extraordinary forecast was and is based upon the seminal research and reports our founder Yale Hirsch undertook and published back in the mid-seventies when he discovered this iconic market cycle, which led him to the greatest market call in history for a 500% move in the market from the 1974 low to 1990.
This pattern as illustrated in the updated chart below shows how the market failed to make any sustained advance while the world was embroiled in a significant conflagration. Once the war ended, inflation caused by government spending kicked in and the stock market made 500+% moves between all of the major wars the U.S. has been involved in. All three previous secular bear markets associated with the three major wars of the 20th Century were also affected by crises that required a great deal of non-war-related spending.
As we developed this forecast further we discovered other components of the Boom Equation. In addition to war and inflation several factors came into alignment that ignited prior Super Booms and Secular Bull Markets, including a properly functioning government that is in synch with the private sector, stimulating innovation and robust economic growth. The final factor is what we call a culturally enabling paradigm shifting technology—something that changes the world by touching and impacting the lives of humans individually across the planet: the next breakthrough technologies that will drive humanity to the new frontier.
When global military entanglements are at bay and political functionality fosters increased business and economic activity, healthy inflation quickens innovations. This opens the floodgates for new inventions and creations that will fuel decades if not centuries of growth and the expansion of civilization. When these new technologies, methodologies and contraptions explode on the scene they push the overall market up 500% or more with new industries that spawn future mega-cap companies that rule the world.
We believe that the final tactical bear of the next Super Boom has occurred. The outcome of the recent U.S. presidential election may be the start of a shift in political stagnation. Sure the market has tripled since the 2009 low, but we think the next big move is around the corner. Back in 1983 when folks started to realize the last boom was underway the market had already more than doubled. We appear to be on a similar path with the February 2016 bear market low equating to the August 1982 bear market low.
After a stampeding bull market year in 2017, and a death-defying rally in January, market volatility has returned. But as we reaffirmed on February 8 in this space our bullish forecast for 2018 remains on track, though we expect another bump or two during the worst six months May-October.
Last March when we updated this Super Boom Forecast the market was suffering from a typical end-of-Q1 retreat. President Trump’s approval rating, his health care reform agenda was on the rocks and there was much speculation that other Administration policy initiatives such as tax cuts and an infrastructure projects would not happen. We cautioned that “It seems like a stretch at this point to jump to the conclusion that the Trump Administration is not going to have any success. We believe the market is still on track for double-digit full year gains and DJIA could reach 23,000 to 24,000 by yearend.” The infrastructure buildout has yet to materialize, but the tax cuts went through and the Dow surpassed our projection of 24,000 by yearend.
Once again we are revising our 15-Year Projection chart. When this was first drawn in 2011 when our book Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It (Wiley) hit the stores, the projection was based upon, drawn from, years of historical patterns and data. In the years to follow numerous unprecedented events occurred, the Fed held its key lending rate in a range of 0 to 0.25% for an incredible seven years, under took multiple rounds of quantitative easing (QE) and essentially pledged unwavering support for the market. Many other nations and central banks around the world were taking similar or even more aggressive steps to support their own economies and markets. Negative interest rates and negative yields on 10 year bonds are not what we consider normal.
Up until 2017 monetary policy had been the real market driver. But now the economy has been standing more on its own two feet, digesting the series of Fed rate hikes and gradual reduction of QE that began in December 2015. In the near-term we anticipate the market rally up to and stall just below its January closing highs before retreating to test and possible violate its February lows sometime during the Worst Six Months (May to October) which would then create the perennial midterm buying opportunity.
As we noted in yesterday’s blog post the Worst of Midterm Year 2018 Could Already Be Over. Over the last 17 midterm years, S&P 500 has declined an average 16.90% sometime during the year. 14 of the 17 midterm year corrections bottomed in the Worst Six Months. Although midterm years have a history of declines, as you can see in the chart below, this year’s positive January Indicator Trifecta may stave off the worst of those as it has in prior midterm years.
Then as we hit the sweet spot of the 4-year cycle from Q4 midterm year through Q2 pre-election year we look for a yearend rally that runs up near Dow 29,000 and then a bit higher, around 30,000 by the end of 2019. Political clashing as the Democrats try to oust President Trump is likely to send the market lower in election year 2020. Then the boom should resume with the potential for another sizeable pullback or mild bear market before we hit Dow 38,820 by the year 2025.
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