The Stock Market is NOT the Economy

Dear Wealth Watch Reader,

People forget too often… the stock market is NOT the economy.

Yes, there’s been a correction. Not in earnings growth however. Today I explain why this makes 2018 look extremely lucrative for you.

Read on below…

Dear Wealth Watch Reader,

People forget too often… the stock market is NOT the economy.

Yes, there’s been a correction. Not in earnings growth however. Today I explain why this makes 2018 look extremely lucrative for you.

Read on below…

Correction? Yes. Bear Market? No Way

Thankfully, much of the pain felt by investors in January has subsided.

It’s not that investors believed this raging bull market would continue indefinitely. But the good times certainly overwhelmed many of our short-term memories.

We forgot there will be down days. And the suddenness of January’s decline caught many investors off guard.

Now that the dust has settled it stands to note, we’ve been in one of the largest and longest bull market runs in history.

But even more important is that we are in the third-longest economic expansion in history.

The expansion’s been long. And the most prosperous one of all-time.

In fact, real corporate earnings this decade are almost double the average of the next-best decade, as reported by ValueWalk:

Record High Earnings Growth

Take a close look. The “real” profits of corporations have grown by an average of 8.1% a year this decade.

That 8.1% growth per year is by far the highest ever.

The previous high was reached the 1990s, which saw 4.7% growth, making real earnings growth (earnings minus inflation) of corporate America unprecedented.

It’s so easy to forget that the stock market is NOT the economy.

Yes, there’s been a stock market correction, but there’s NOT been an earnings correction.

And since we buy stocks based upon expectations for future earnings growth, that means however painful the decline felt, it was only temporary.

Moreover, the unprecedented real earnings growth justifies the market’s current high valuation level.

Keep in mind too, the earnings boost from new Trump tax cuts has yet to fully impact corporate earnings.

The stock market is going to gyrate, but corporate profits are growing so strongly that — other than an unforeseen external shock — I don’t see any chance of a recession in the near future.

Which leads me to the resiliency of the junk bond market.

Junk bonds are especially sensitive to economic downturns and are a reliable canary in the stock market coal mine.

Not only are junk bonds holding their own, but the yield spread between junk bonds and government bonds is narrowing — not increasing.

What Junk Bond Yields Are Telling Us Right Now

I point this out because recessions are tightly correlated to bear markets.

Since 1950, we’ve had nine bear markets and 10 recessions. And almost all of these bear markets overlap with the economic downturns.

No Sign of Recession Here...

The only exception is in 1987, when GDP didn’t turn negative and the stock market quickly rebounded from Black Monday.

And all this data together tells us there’s scant evidence a recession is in our immediate future.

In fact CNBC reports, the highly reliable Atlanta Federal Reserve growth model is forecasting GDP to grow by an impressive 5.4% this quarter.

That would be the strongest quarter since 2009, and the simple reality is that the absence of recession signals means that the bull market is not over.

In fact, the unprecedented real earnings growth tells me that the bull market may have many more years to run.

There’s plenty of money making opportunity ahead.

Here’s to growing your wealth,

Mike Burnick

Mike Burnick
Chief Income Expert, Mike Burnick’s Wealth Watch

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Mike Burnick

Mike Burnick is the editor of Mike Burnick’s Wealth Watch, Infinite Income, Amplified Income and Millionaire Moments. Mike has been bringing his trading strategies to the masses for over 30 years. He has been with Seven Figure Publishing since 2017. In 2018, the average return of Infinite Income beat the...

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