Super Boom Update: We’ve Only Just Begun!
By: Jeffrey A. Hirsch & Christopher Mistal
March 21, 2017
Today the S&P 500 ended its daily streak of trading days without a 1% or greater decline at 109. Since 1950, there are only 9 other S&P 500 streaks of this duration or longer. The longest streak was 184 trading days in 1963. The average gain during the past 9 streaks was 15.16%. S&P 500 fell short of this mark this time at 11.30%. Compared to S&P 500 streaks lasting 89 trading days or longer this list has six fewer and shows additional weakness 3-Months after the streak ended.
[Big table of returns]
The chart above is the average performance of these past 9 streaks 30 trading days before the streak ended and 60 trading days after comparing 79 trading day and longer streaks to 89 day and longer streaks to 109 trading days and longer. Weakness near the end of the chart, 60 trading days is approximately 3 calendar months later.
[30 trading days before and 60 after 109 or greater trading day streak without 1% loss ended]
Arguable today’s retreat was overdue. Perhaps it was due to some early end-of-quarter profit taking and portfolio restructuring triggered by President Trump’s slipping approval rating and the possibility that health care reform may not happen as quickly as promised. This potential failure has led to speculation that other Administration major policy changes such as tax cuts and infrastructure spending roll out will be delayed or worse yet, not happen at all. 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.
Super Boom Update
Last year at this time we provided an update and the market tracked it in principal yet outpaced our expectations. There was a late-summer/early fall pullback ahead of Election Day and the market did rally once the ballots were counted – but two times what we projected. One major difference was the front-runner last March did not win. The actual winner brought a potentially more pro-growth agenda, tax cuts, healthcare reform, less regulation, infrastructure and defense spending – at least that’s what the market expectations has been since the election. DJIA celebrated the new possibilities with new all-time highs quickly surpassing 19,000 on its way to over 21,000 in early March. Along its way higher, a positive January Indicator Trifecta was completed which only further improves the market’s prospects this year.
Once again we are revising our 15-Year Projection chart. When this was first drawn in 2011 when my 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 of 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.
Although the long-term consequences of all these actions are not yet fully understood and possible may never be, the short-term immediate effect was to make stocks the only real place to find any return. Traditional “safe” investments became dead money. With few options available and the Fed clearly supporting the market, what better choice was available? More stock buyers than sellers results in higher prices. Not only was more money pouring into the markets, due to a lack of choices, but corporations themselves, fueled by lost-cost money were (and still are) able to borrow for next to nothing to pay for dividend increases and share buyback programs. An increasing demand for a shrinking supply of stocks inevitably leads to higher prices.
Yes the economic recovery has played a role in lifting markets more recently, but monetary policy has been the real driver since QE3 kicked-in in late 2012 and 2013. As a result, markets are trading much higher now than we could have envisioned back in 2011 and thus the path to DJIA 38,820 has changed somewhat and so has our 500+% Moves Chart. We have expanded the scaling to fit DJIA’s current level and left room to run for DJIA to reach our target.
[DJIA 500+% Moves Follow Inflation Chart]
In the near-term we anticipate this current, typical end-of-Q1 pullback to be mild and find support around DJIA 20500 or 20000 at the low end near the December-February consolidation range. The we look for pop at the end of the Best Six Months to 21500 in May followed by a little breather in June and a near-term high around 22000 in July before a 5-10% summer correction.
After the late-summer/early fall low around 20000-21000, we look for a yearend rally that runs all the way up to 23000-24000 before the impact of higher rates and new federal government policies and legislation reverberates through the stock market creating the potential for an old fashioned, cyclical 20-30% bear market – or a Ned Davis Research defined bear market in the 13-19.99% range, finding its low point near the midterm elections in 2018 or early in 2019.
From pre-election year 2019 through the 2020 election and into 2021 and 2022 we expect the DJIA to take out 25000 and begin the march to 38,820 by 2025. This will be achieved on the backs of renewed normalized growth, inflation and interest rate levels; in conjunction with functional, bipartisan government and new culturally enabling paradigm shifting technology – quite likely coming out of the healthcare/biotech industries.
Super Boom Projection Chart