This week, we’ve set the scene for what’s to come in the market by looking at the past.
Today, we’ll add more to that story by looking at the past again… but projecting to the future too.
Few folks doubt that we’re in the late stages of the bull market cycle.
But most can’t agree on exactly how the next few years will play out… and what will happen next.
It’s not an easy question to answer.
But we’ll do our best to figure out how the market is shaping up for the next decade or so – as well as how investors should invest in it.
Sit tight, and we’ll give you one view of what the future may hold.
But first, let’s recap today’s market action…
The S&P 500 closed up 1.89% to end the day at 4,317.78… the NASDAQ gained 1.78%, to close at 13,294.19.
For individual stocks, Microsoft closed up 0.65% to $348.82… Apple ended higher by 2.1% at $177.57… and Tesla ended the day at $218.51, a 6.25% gain.
In commodities, West Texas Intermediate crude oil trades at $82.36… gold is $1,992 per troy ounce… and bitcoin is $34,966.
And now, back to our story…
“Do Something” Investing
In February 2009, before the absolute bottom of the financial crash, a few journalists made a keen observation.
It points to a very long-term view of the markets.
We’ll get to that observation and what it means for the future of the market… potentially as far out as 2038.
We know that’s a long way off. Many people think holding a stock for a year is a long-term position.
That’s partly due to the popularity of trading. Most investors convince themselves that they aren’t really investing unless they’re doing something.
For them, the “doing something” almost always means buying and selling. Heaven forbid that they “do nothing” and just let time do its thing.
For example, look at how this short-termism has become ingrained in the options market…
Not so long ago, index and stock options had one options expiry date per month.
It was always the third Friday of the month. That goes back to the introduction of options in 1973.
Then the exchanges introduced weekly expiry options in 2005. As the name suggests, these options expire at the end of the week.
And since 2022, “0DTE” options are available. That is, “Zero Days to Expiration” or same-day option expiries.
So now you can place a bet on what the S&P 500 will do today using an options contract that will expire today. Tomorrow, you can do the same thing. And it’s the same the next trading day and the trading day after that.
(In fact, it’s a strategy that a friend of Legacy Research, Larry Benedict, uses in his S&P Trader service. The strategy involves collecting options premium as a method of advanced income generation.)
Anyway, you get the point. Most investors focus on the short term when they should spend more time on the long term.
That brings us back to today’s essay…
Death of Equities? Not Quite
In Monday’s Daily Cut, we mentioned our analysts have different views on the near-term outlook.
Some see a recession; others don’t. Some see it in a year. Others say no chance for another two or three years.
(And the mainstream says it could happen as soon as the first quarter of 2024.)
Regardless of the precise time frame, most agree the years of money printing… historically low interest rates… excessive government spending… and growing consumer debt will have consequences.
So let’s look at how this current market trend fits into the bigger picture.
Take the chart below. It’s the S&P 500 from 1945 to present. It’s a logarithmic scale, showing the extent of the market rally over the last 80 years.
It’s similar to the chart we showed you on Monday, although this one covers a shorter time frame.
We’ve circled two key areas. The first runs from 1968 to 1980. The second runs from 1997 to early 2009.
Both are 12-year periods where the market pretty much traded sideways.
Of course, you could argue that in real terms (which accounts for inflation), the market fell substantially. The 1968-1980 period was particularly brutal for inflation.
It made that period the second worst time to own stocks, after the Great Depression.
Depending on your age, you may have grown up or started investing during one or both of those times. It couldn’t have been much fun.
Just look at this headline from August 1979, right before the cycle turned. BusinessWeek ran a cover story called “The Death of Equities.”
Of course, it wasn’t quite the end of stocks.
As we mentioned in Monday’s Daily Cut, that’s when Paul Volcker became chairman of the Federal Reserve. He caused a recession by raising interest rates to kill inflation.
From then on, it was another bull market, with a few bumps (large and small) along the way.
That brings us back to that forgotten news story from 2009…
1997 to 2009: Another 12-Year Roundtrip to Zero for Stocks
At that time, a handful of market analysts looked at the current prices of the Dow, S&P 500, and Nasdaq. They observed that from 1997 to 2009, prices had gone nowhere… for 12 full years.
So ponder this… If we have a similar 18-year rally from the 2008/2009 lows, then that gets us to around 2026. That’s exactly in line with Phil Anderson’s view of the market. (Remember that Phil’s 18.6-year cycle is an average.)
From there, what happens next? Will we see a similar pattern play out compared to the action from 1997 to 2009? (Overall, a sideways market?)
Or something different?
Well, according to Phil, that period will mark a bear market. But how deep that market will be is anyone’s guess.
And even if it results in a new bull market after that, who can guarantee the market will rebound quickly to its old highs? The Nasdaq took 15 years to recover from its dot-com high.
But that doesn’t mean there won’t be opportunities…
Winners in Sideways Markets
The market will continue to be a trader’s and stock-picker’s market – rather than an index-buyer’s market.
Think about it this way…
The 1997 to 2009 sideways period gave you three years of big outperformance in technology stocks, particularly internet stocks.
When that sector’s bull run ended, real estate and financial stocks took over.
That resulted in a construction boom and thriving commodities. Not to mention the growth of China and Southeast Asia.
An increase in oil and gas demand led to new technology, such as fracking and horizontal drilling. This boosted oil and gas stocks.
Later in the cycle, shipping stocks played to strong globalization trends. Again, China was a big influence here.
You see, you’ll almost always find a winning trend somewhere.
It’s just that in a sideways market, it’s harder to find them. That makes sense. In a bull market, everything goes up.
So which trends can we expect to be the most sustainable over the next 5–10 years?
AI is surely one of them. Like during the dot-com boom, expect to see some spectacular winners over the next few years.
For that, we’ll grill the Legacy Research analysts to find out where they see the best opportunities for the next 5–10 years.
So stay tuned. We’ll share more of their longer-term outlooks in the coming weeks and months.
Yet as the market turns more bearish in the coming years, you’ll start to see more and more stories like the BusinessWeek “Death of Equities.” Don’t be fooled by it.
There are always ways to play the market.
The next downturn and recovery will be no different.
One More Thing
One boom that seems set to last is Bitcoin and cryptocurrencies.
U.S. regulators appear to be on track to approve a Bitcoin ETF. When that happens (and we’re sure it will happen), then Bitcoin will have genuinely made it to the mainstream.
Legacy Research colleague Teeka Tiwari has been writing about the inevitability of “mainstream” Bitcoin since at least 2015.
The combination of Bitcoin as an asset class and an effective store of value has only increased its popularity and interest among investors.
And with years of money-printing, price inflation, and big government spending seeming to never end, more investors are becoming concerned about the value of their dollar savings.
That’s why Teeka is holding an exclusive event next Wednesday, November 8, at 8 p.m. ET. As part of that event, Teeka will explain the events and consequences leading up to what he calls the “Final Collapse” of the U.S. dollar.
This is a must-see event. Go here for details.
Our main task at the Daily Cut is to try to “connect the dots.”
We help you figure out what events are about, what makes them important, what their consequences are, and what it all means for you.
But sometimes, we see the individual “dots” but can’t yet figure out how they connect to anything. (Maybe they never will connect to anything.)
Regardless, if those unconnected dots feel important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
The green energy revolution is inevitable, they say. Or perhaps not. DNYUZ reports, “Orsted, the Danish company that is a leading offshore wind farm developer, said on Wednesday that it would write off as much as $5.6 billion as it gives up on plans to build two wind farms off the coast of New Jersey.”
The International Energy Agency claims that oil and gas demand will peak by 2030. We wouldn’t be so sure about that if the New Jersey wind farm story is a trend of things to come.
Today’s top gaining ETFs…
SPDR Kensho Clean Power ETF +4.58%
iShares MSCI Mexico ETF +4.48%
Amplify Transformational Data Sharing ETF +4.26%
iShares MSCI Canada ETF +3.93%
Invesco S&P Ultra Dividend Revenue ETF +3.77%
Today’s biggest losing ETFs…
Invesco KBW Property & Casualty Insurance ETF -1.23%
VanEck ChiNext ETF -0.75%
iShares MSCI China A ETF -0.37%
Alpha Architect Gadsden Dynamic Multi-Asset ETF -0.36%
iShares Floating Rate Bond ETF -0.05%
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at [email protected] and just type “Daily Cut mailbag” in the subject line.
Editor, The Daily Cut