Double Down on Dow 30K
After the painful end to 2018, it is perfectly natural for you to be worried about a stock market meltdown.
But you should also ask yourself, “Under what circumstances could there be a stock market melt-up?”
Melt-up… say what?
A lot of investors might characterize January as a mini melt-up.
The stock market had its best January in over 30 years, with the S&P 500 up 8%, the Nasdaq 100 up 9% and the Russell 2000 up a very impressive 11%.
Those are already big moves, but they could be just the tip of the iceberg.
Quell Your Fears
Let’s play out some “what if” scenarios with some of the biggest fear factors that were bugging investors last year and remain causes for concern…
Our trade ties with China are chop suey right now, but what if the Trump administration reaches a trade deal with China?
Breaking up is hard to do, but what if the United Kingdom finally comes up with a graceful Brexit solution?
The Federal Reserve has been ratcheting rates higher for three years now, but what if the Fed follows up its recent dovish comments with an interest rate cut?
I think the most plausible catalyst for higher stock prices is the amazingly strong jobs market. I won’t regurgitate the January jobs report that showed the creation of 304,000 new jobs.
That’s especially true if those new jobs are high-paying jobs instead of minimum-wage service jobs.
In the last year, some of the strongest job growth came from business services (white collar), education/health services and construction.
More Money Flowing Is Better for Everyone
As I said last week, when Americans are working, they spend money and that is good for corporate profits. In fact, there is a strong inverse relationship between unemployment and the stock market. Over the last decade, when the unemployment rate fell, stocks rose.
When stocks bottomed in 2009, the unemployment rate rose to 10%.
By the end of 2013, unemployment dropped to 6.7% and the S&P 500 was up 29.6%.
By mid-2015, the unemployment rate dropped to 5% and stocks had gained another 14.5%.
At the end of 2017, unemployment dropped to 4.1% and the S&P jumped 19.4%. You get the picture.
You don’t have to be a rocket scientist to understand when the number of Americans with well-paying jobs rises, that translates into higher retail sales, rising economic output, and higher savings.
Put simply, a low unemployment rate is an indicator of economic expansion, and that tells me the path of least resistance for the stock market is higher from here, not lower.
Perhaps the Dow even hits 30,000 by year-end!
As such, continue to hold, and certainly consider adding to your stock positions right now.
Personally, I’m adding as many big names from the health care sector to my holdings as I can right now.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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