Market Legend Makes Bold Contrarian Prediction
I keep the TV in my home office tuned into financial news during the day, but almost always with the volume muted. I like flipping between CNBC, Fox Business and Bloomberg to see if there are any guests worth listening to.
Most often there aren’t.
But the other day I saw BlackRock CEO Larry Fink on CNBC, and he’s one of the few commentators worth listening to. If you’re not familiar, BlackRock is one of the world’s largest asset managers, specializing in index-tracking ETFs.
Candid Info From an Investing Legend
As BlackRock’s chief, Fink frequently offers candid and interesting insights on where funds are flowing in the fast-growing ETF industry.
What grabbed my attention in Fink’s recent appearance were his typically direct comments about the biggest risk markets face today: “We have a risk of a melt-up [in stocks], not a meltdown here.”
He went on to point out that in spite of the strong rally so far this year, “We have not seen money being put to work. We have record amounts of money in cash.”
And this observation squares perfectly with my own analysis, covered in a previous article on hot sectors for this next market rally. Despite a strong gain of 16% in the S&P 500 in three months, both retail and institutional investors are SELLERS of stocks. Combined, they have accounted for $15.5 billion in cash outflows from equities to date this year.
Fink’s stock market melt-up scenario makes perfect sense because nobody’s expecting it. It’s a delightfully contrarian call, and it’s more likely to be right on the money.
Why the Path for Stocks Is Higher, Not Lower
The four-year presidential election cycle is one of the most consistent and reliable drivers of stock market returns and has been for decades. Right now we’re squarely in the most bullish part of the cycle.
The sweet spot of this four-year cycle starts at the midterm election-year low — which was the fourth quarter of 2018.
Historically, stocks enjoy a big upside move over the following 18–24 months, up until the next election approaches.
During this sweet spot of this cycle the S&P 500 has gained a whopping 40% on average, all in less than two years! By contrast, any random two-year period would see stocks gain only about 15% in value.
And you can clearly see by the bull’s-eye drawn in the chart above that right now we’re ONLY about 75 days into the cycle, which means the stock market most likely has another 12–18 months to rally even higher.
Based on the historical record, the S&P could easily reach 3,200–3,400 during this upward cycle.
Melt-up, here we go!
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch