In early-2017, we said that if Trump passed his pro-growth policies, the U.S. stock market could soar 20-40% per year in 2017 and 2018. Now that Trump’s pro-growth policies are mostly dead, investors are going to have to settle for normal-sized rallies in the last few years of this bull market.
*Our medium-long term model states that the current bull market still has 2-3 years left.
A historical comparison: 1986-1987 vs 2015-2017
We published a new webpage titled Why the U.S. stock market soared in 1986-1987. There are a lot of similarities between that period and 2015-2017.
- Oil crashed from late-1985 to early-1986.
- Oil crashed from late-2014 to early-2016.
Oil’s crash in both of these cases caused a decrease in U.S. corporate earnings, a slowdown in the U.S. economy, but no recession.
Due to the temporary economic slowdown, the stock market swung sideways in a big range.
- The S&P was sideways from April-September 1986.
- The S&P swung sideways in a massive range from May 2015 – June 2016.
- Reagan pushed through Congress a MASSIVE overhaul of the U.S. tax code on October 22, 1986. That caused a MASSIVE rally in the S&P 500 that lasted until August 1987 (42% gain).
- Trump won and promised a massive pro-growth plan (tax overhaul on the scale of Reagan’s, infrastructure spending). That set off a rally that was smaller than Reagan’s.
Trump’s pro-growth policies are mostly dead. He does not have the same majority in Congress that Reagan did. Without Trump’s pro-growth policies, the S&P cannot rally as fiercely as it did from October 1986 – August 1987 (an astonishing 42%). What a pity.
*In a year like 1986-1987, UPRO (3x S&P ETF) would go up at least 200%. 42% x 3 = 126%, but UPRO compounds on itself. Massive profits.
Fortunately, the stock market isn’t going to make a significant correction without Trump’s policies. The U.S. economy is once again on solid footing, so the S&P will rally upwards in a normal fashion.