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After 19 years protecting the stock market for USA TODAY, Adam Shell offers his greatest recommendation on easy methods to efficiently spend money on the market.
USA TODAY

Welcome to the final in my collection of columns on the 12 months forward. In my 4 earlier ones, I coated why December was awful and why shares are on the best aspect of a swift V-shaped recovery. U.S. shares have climbed greater than 10 % for the reason that market shut on Christmas Eve. Accompanied by wild wiggles, the remainder of 2019 must be equally completely happy. 

On December 17, I defined how shares’ have averaged 34 % earlier than dividends within the 12 months in any case of historical past’s correction bottoms (which means a drop of 10 to 19.99 % within the Standard & Poor’s 500 index). 

Assuming December 24 stays the underside, this correction ended later in a calendar 12 months than any correction or bear market ever. An common aftermath now would make 2019 merely stellar, and shock nearly everybody. That’s bullish.  

Maybe December 24 wasn’t the underside. We can’t know for positive.  But there have been considerable bottomish indicators. Mutual fund outflows reached ranges solely related to main market bottoms. December outflows matched March, 2009, when the final bear market ended. U.S. stock market liquidity sank like a brick, additionally echoing prior lows.  

Price-to-earnings ratios contracted final 12 months – earnings soared whereas shares fell. A easy secret: Basically yearly valuations shrink, the following 12 months they develop. So except earnings fall, shares rise. Analysts anticipate 6.9 % earnings development in 2019. Earnings nearly at all times exceed analysts’ estimates. Expanding valuations on high of earnings development would trigger huge optimistic stock returns

Good years comply with dangerous years except you’ve gotten world recession or world conflict. We’ve by no means had two straight unfavourable stock market years – besides with the Great Depression, the 2 World Wars, the early 1970s debacle and the tech bubble. Otherwise, shares have been spring-loaded the following 12 months.

And recession is unlikely. I confirmed you precisely why final week by way of the Leading Economic Index collection – an amazing predictor for this.

Many misguided folks nonetheless assume the rate of interest “yield curve” inverted, signaling downturn lurks. I defined on July 22nd why that is flawed and easy methods to view it appropriately to see actuality.

But, suppose it have been inverted. So what?

 (Photo: GETTY IMAGES)

History holds four examples of the yield curve inverting without a recession the next year. Stocks rose every time, averaging 16.6 percent that next year. Since inversion fears are now in the marketplace – that’s big potential upside surprise, and bullish!

The government shutdown flooded folks with fear. Yet it shouldn’t. The aftermath of shutdowns is also great, with U.S. stocks averaging 12.8 percent in the next 12 months.

Sure, shutdowns must end to have an aftermath. But shutdowns themselves aren’t bearish. The prior 19 shutdowns occurred while markets were open. Stocks rose during 11, including 1995-1996 – the longest shutdown before the current one. Now people worry this one’s length will cause problems. But U.S. stocks, a leading indicator, have risen over 8 percent since it began. They’re telling you not to worry.

Everywhere I look, sentiment seeks negatives, ignoring positives. Did you know global lending and money supply are growing around 6 percent year-over-year? That the global purchasing managers’ index is higher now than during most of 2016, a fine year for stocks? That world trade is growing nearly 4 percent year-over-year despite this supposed trade war? That global profit margins are too?

If you didn’t know any of this, you aren’t alone. Most good news goes unreported or gets couched as bad – a phenomenon I call the pessimism of disbelief. When it strikes, better times are ahead.

Next week, I’ll share some timeless investment process wisdom to help you put all this into practice.

Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.

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