*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades.
Go to the homepage for my latest market outlook. I update this webpage throughout the day.
- Large cap stocks will continue to outperform small cap stocks.
- The S&P is up 6 days in a row. Short term bearish for stocks, irrelevant for te medium term.
- Demographic changes will push U.S. housing higher over the next few years. Bullish for the economy and stock market.
- Emerging market stocks will outperform U.S. stocks in the final 2 years of this bull market
Read Study: rising inflation is not bearish for stocks
Feb 19: The S&P 500 is up 6 days in a row. Short term bearish, irrelevant for the medium and long term.
The S&P 500 has closed higher 6 days in a row as of last Friday.
This supports the case that the S&P will at least make a small pullback before heading higher.
“6 consecutive days higher” is irrelevant for the medium and long term. This isn’t a rare or medium-long term bearish event. The S&P has “closed higher 6 days in a row” 417 times since 1950.
Feb 19: Large cap stocks will continue to outperform small cap stocks
I think large cap stocks will continue to outperform small cap stocks over the final 2 years of this bull market.
- Large cap stocks are cheaper than small cap stocks. Lower P/E ratios
- Large cap stocks are experiencing faster earnings growth.
Large cap stocks are experiencing rapid earnings growth because tech companies (e.g. Google, Amazon, Facebook) are killing it. Bull markets don’t care about valuations. Large cap tech companies will continue to outperform the S&P as long as they continue to demonstrate higher-than-average earnings growth.
Of course these tech companies will fall more than the S&P during the next bear market. Valuations only matter once a bear market has started.
February 18: Demographic changes will benefit U.S. housing over the next few years.
In terms of the U.S. population, adults aged 20-29 tend to rent while adults aged 30-39 tend to buy houses.
The 30-39 age group is booming and will continue to boom over the next few years.
This means that demand for new houses is increasing, which will continue to push Housing Starts higher over the next few years.
Housing is a critical component to the U.S. economy. Housing starts going up = the U.S. economy will continue to improve. Since the U.S. stock market and economy move in sync over the long run, housing starts going up = long term bullish for the stock market.
Feb 18: Emerging market stocks will outperform U.S. stocks in the final 2 years of this bull market
Global inflation is on the rise as this economic expansion ages and the U.S. economy pushes past NAIRU (full employment). Historically, emerging market stocks outperform U.S. stocks during periods of rising inflation because the U.S. dollar goes down.
Historically, rising inflation is long term bearish for the U. S. dollar. A U.S. dollar bear market causes foreign stocks to appreciate purely due to forex fluctuations.
In addition, emerging market equities are still cheaper than U.S. equities despite a massive rally in 2017. This alone will attract U.S. investors to emerging markets. Last year’s massive rally left a strong impression in the minds of investors, so a “buy the dip” mentality is alive and well.
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a small 6%+ “small correction”. This will not turn into a “significant correction”.
- The S&P 500 has approximately 2 years left in this bull market.
I do not use my discretionary outlook to trade. I remain 100% long UPRO because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been 100% long UPRO since September 7, when the S&P was at 2465 and UPRO was at $109.3
*I also have a small Day Trading portfolio. Click here to view my day trades.