You read that title right.
The S&P will double.
And not just eventually. But over the next 5 years (or sooner).
Sounds like a Herculean task on the surface, but it’s really not.
In fact, the market only needs to gain an average of 14.9% per year in order to do so. That’s not such a stretch given the market has been averaging 14.9% per year since this bull market began in early 2009, even though GDP (prior to this year) has only been increasing at an anemic 1.48% annual rate.
My 5 year doubling thesis also means that we won’t see another recession until stocks double again, nor will we see another bear market until stocks double again.
Now let me tell you why. And how to trade it.
Boom and Bust Cycle
We are all familiar with the typical 5 year boom and bust cycle of economic expansion and contraction.
In the past, following a recession, the economy would grow by over 3-4% annual GDP, and a new bull market would begin. As the recovery would take hold, gains would accelerate, and excesses would get built up in the economy.
With that, inflation would rise, thereby prompting the Fed into a series of interest rate hikes to cool things down.
Ultimately, the economy would slow, then fall into contraction, and a recession (along with a bear market) would ensue.
Excesses are wrung out, inflation subsides, and the economy is eventually reset.
Growth reemerges, and the whole boom and bust cycle repeats itself once again.
More . . .
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Things Changed After the Recession of 2007-2009
When the economic recovery (and stock market recovery) began in March of 2009, GDP grew at an abnormally slower pace.
This prompted the now famous ‘new normal’ line that characterized this post-recession recovery.
Hearing this, I hypothesized that the traditional 5 year boom and bust cycle would be replaced with something far different.
Since we were growing at a significantly slower pace, I concluded that the ‘boom’ cycle would be elongated to 7-10 years, while the following ‘bust’ cycle would be shallower in depth and shorter in duration, given that there would be fewer excesses or inflation to wring out.
And I think this theory has played out perfectly so far.
The current boom cycle has been going on for 8.7 years. And in that time, the S&P has gained more than 300% from its low on March 6th, 2009 to its close on Dec. 15th, 2017.
Theory had become fact.
Transformational Growth That Will Double the S&P
It’s no secret that the market has been reenergized this year on the Trump administration’s pro-growth agenda, which includes the soon to be released corporate tax cuts.
The plan is to reduce corporate taxes from their current 35% rate, to as low as 21%.
That would put corporate taxes at the lowest level in 68 years, going all the way back to 1949.
Moreover, the administration is also expected to include incentives for companies to repatriate accumulated profits from overseas (estimated at more than $2.5 trillion dollars) with an even lower tax rate.
And what will businesses do with all of those profits?
There’s no doubt some of that will go to stock buybacks. But with the US suddenly becoming one of the most business friendly countries in the world, you will see massive new corporate investment.
This includes relocating foreign operations back to US soil; building new plants to expand; and the purchase of new equipment and technology to see it all through.
All of this economic activity means more new jobs. And with more jobs comes a stronger consumer, which means more consumer spending. That, of course, is good for business, and the whole virtuous circle is reinforced.
These tax cuts alone could usher in decades of new prosperity.
And it should be noted that these aren’t one-time stimulus packages that provide only temporary incentives and modest economic benefits.
We’re talking about transformational growth due to long-term structural changes in how companies do business in America.
Subpar to Supercharged
Instead of the subpar 1.5% annual GDP that the market had been struggling to achieve from the beginning of this bull market thru 2016, the economy is expected to double that pace to 3-4%. In fact, as of Q3 ’17, the GDP is already pacing at an annual rate of 3%.
But even with the weaker than normal economic pace prior to this year, the market in just the last 5 years has produced a total compounded return of over 126%.
So it’s not hard to imagine that if GDP were to double, or more (and it already has this year), earnings would soar, and stocks could easily gain another 100% over the next 5 years, and likely a whole lot more!
And let’s not forget the other pro-growth benefits from slashing onerous regulations that have stifled business, the proposed $1 trillion in infrastructure spending scheduled for 2018, a significant increase in the military budget, not to mention the individual tax cuts that are also part of the tax cut plan.
Quite frankly, given all of the above, I think the gains could be far more reaching.
And that makes the prediction of doubling the stock market a very doable thing.
As mentioned earlier, the current 8.7 year bull market, which has already gained more than 300%, is now the second longest bull market in history.
What’s the longest?
Between December 1987 and March 2000, the market rallied for 12.3 years, gaining 582% along the way.
We’re only 3.6 years away from surpassing that. And I think we most certainly will.
Positioning Yourself for Record Gains
The best way to maximize your returns, not only for the rest of this year and 2018, but for the next 5 years and beyond, is to focus on proven, profitable strategies.
You want to be sure you have the highest probability of success to capitalize on what could become the most dynamic part of this record bull market.
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.
For example, stocks with a Zacks Rank #1 Strong Buy have beaten the market in 24 of the last 29 years with an average annual return of more than 25%. That’s more than two times the S&P. But when doing this year after year, that can add up to a lot more than just two times the returns.
But with over 200 stocks assigned a Zacks Rank #1 at any given time, you still need a way to get that list down to the best 5-10 stocks that you can buy.
Here are a few of my favorite strategies that performed spectacularly well this year, are easy to trade, and are poised for big gains again next year.
Filtered Zacks Rank 5: 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 17 years (2000 thru 2016), using a 1-week rebalance, the average annual return has been 55.6% vs. the S&P’s 4.2%. It was up 70.7% in 2016. And so far this year (thru 12/8/17), this strategy is already up 80.6% (more than 3.8 x the market).
New Highs: 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 17 years (2000 thru 2016), using a 1-week rebalance, the average annual return has been 52.5%. It was up 95.5% in 2016. And so far this year (thru 12/8/17), it’s already up 107.2% (more than 5.1 x the market’s returns).
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 17 years (2000 thru 2016), using a 1-week rebalance, the average annual return has been 61.0%. After beating the market again in 2016, it’s already up this year (thru 12/8/17), a whopping 108.2% (more than 5.2 x the market).
Roadmap to Success
Given the performance of the strategies above, the market may not even need to double in order to double your returns. And we probably don’t even need five years.
But there’s no doubt we are in the midst of history being made. And with it should come historic returns.
As you can see, there’s a clear roadmap to success to help you double your stock returns. No need to reinvent the wheel. The path has already been created. Now it’s just about doing it.
And just like anything, it only requires a few simple steps to get the ball rolling.
Where to Start
There’s a simple way to take advantage of what looks to be a booming market in 2018 and in the years to come. It’s called the Zacks Method for Trading: Home Study Course.
With this fun, interactive online program, you can master the Zacks Rank without attending a single class or seminar. Do it online in your own home at your own pace. It covers the investment ideas I just shared and guides you to better trading step by step.
You’ll quickly see how to get the most out of the system that has more than doubled the market since 1988. Discover how to identify what kind of trader you are, how to find stocks with the highest probability of success, and how to trade them so you can consistently beat the market regardless of where stock prices are headed.
The course helps you create and test your own strategies, and also shows the latest picks of some of our best-performing strategies from a variety of different trading styles. From 2016 – Q3 2017, while the S&P 500 gained 27.9%, these formulas produced stunning overall gains of 101.1%, +189.3%, even +218.4% and more.
Today is the perfect time to get in. We’re giving participants free hardbound copies of my book, Finding #1 Stocks, a $49.95 value. We’ll even cover the shipping. Its 300 pages unfold virtually every trading secret I know and have learned to beat the market.
Please note: Copies of the book are limited and your opportunity to get one free ends midnight Sunday, December 17. So if you’re interested, be sure to check this out right now.
Find out more about Zacks Home Study Course and claim your free book >>
Thanks and good trading,
Zacks Executive VP Kevin Matras is responsible for all our trading and investing services. He developed many of our most powerful market-beating strategies and directs the Zacks Method for Trading: Home Study Course.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.