The price of the S&P 500 has doubled in the past four years.
Surely then, investors say, this must be the top.
It’s all downhill from here, the doom-mongers warn. Put on your crash helmets!
But before you bet your cash on the S&P 500 folding its wings and dive-bombing into the abyss, let me give you four reasons why stocks can not only go higher, but much higher.
1. Stocks Aren’t Expensive. Sure, the prices of the major stock indices have doubled. But so have earnings.
The gold story nobody is talking about …
Billionaire investor George Soros say the 12-year bull run for gold is running out of steam. He’s not the only one.
Gold experts at Credit Suisse, Barclays and more are betting against gold. Could 2013 be the year the gold rally finally peaks?
They make a powerful case to be bearish on bullion. But we think the bear story will turn out to be … bull. Click here to see why.
The S&P 500 traded at 15.32 times earnings as of Friday — below the average 19.9 reached in all prior bull markets since 1962, according to Bloomberg data.
In fact, stocks are cheaper than at any record high since 1980. Here’s a chart showing S&P 500 price and price-to-earnings …
Sure, “cheaper” doesn’t mean “cheap.” For cheap, you have to look at specific industries, like gold or natural gas or base metals. But speaking more broadly, on a price-to-earnings valuation metric, the S&P 500 is not expensive.
2. New Highs Usually Lead to an Extended Bull. Recent data from Ned Davis Research looked at the 13 new highs for the S&P 500 since its 1950s debut.
In the worst case, the S&P 500 tacked on another 2.3% over 132 days before peaking. In the best case, the bulls marched ahead for around 7.5 more years — 2,711 days, to be exact — and added another 221.6%.
The median since 1954 is 417 days and 18% upside. On average, the bull market gained 40.3% over 644 days.
Just a reminder, the difference between average and median is that you get the average by adding up all the data points and dividing by the number of data points you have. The median is the middle of the numbers.
Whichever way you want to slice it, history suggests that this bull market has a ways to go. Sure, it could be different this time. But …
3. We’re Not In a Recession. It might feel like hard times, and for many people, things are still tough. But there’s also good news. The U.S. keeps serving up positive numbers on new home sales, auto sales and manufacturing, while jobless claims are dropping.
An easy way people look at it is to use a chart showing the index of leading economic indicators from the Economic Cycle Research Institute. Here is the ECRI’s chart showing the Weekly Leading Indicators charted against GDP …
Maybe it’s not the rip-roaring growth we’d like, but we all know we’re dealing with a Congress that prefers to sit on its hands rather than stimulate the economy.
The fact is, the economy is growing despite the best efforts of some in Washington to mess things up. Why? Because we were in a long recession and demand built up, and now this pent-up demand is being unleashed.
Also, we’re in the middle of that energy boom I keep harping about — “Welcome to Saudi America!”
Stock prices are not directly dependent on economic growth. It’s more complex than that. But it’s also true that it’s easier for stock prices to go up when the economy is growing, which is happening now.
4. The Housing Market Has Bottomed. February home sales hit a three-year high, and the housing recovery is likely not even close to over.
Analyst Ivy Zelman, who was one of the few to correctly call both the top and bottom for housing, recently told CNBC that this was “the first or second inning of the fundamental recovery that could be five to 10 years in duration.”
That doesn’t mean there still aren’t problems. There remain roughly 5.3 million homes either in delinquency or in the foreclosure process. However, signs of a recovery can’t be ignored. Housing starts are making a comeback, as are sales and residential investments.
My ‘silver bullet’ play for 2013
As gold soars in the face of worries over Cyprus and our ballooning debt, silver is now poised to play "catch-up" and offer investors some home-run profits.
With hundreds of millions of ounces in proven reserve, silver could soar to $100 an ounce — which is very possible in the next couple years!
We’ve just completed a new special report that covers this exciting opportunity — and much more. Take a quick look before you make any moves in your own portfolio …
Housing is about 15% of America’s GDP as of the third quarter of 2012, according to the Bureau of Economic Analysis (BEA). Of that total, nearly 3%, is due to residential fixed investment (RFI) — the construction of new single-family and multifamily housing units, remodeling or improvements to existing homes, and brokers’ commissions for the sale of housing.
According to a 2008 study by the National Association of Homebuilders, the estimated one-year impact of building 100 single-family homes in a typical metro area is 324 local jobs. Plus, the annual recurring impact from building those 100 single-family homes is 53 local jobs.
So, not only do you have a direct one-time impact, but housing also creates a recurring employment market. This cycle of growth is a powerful economic generator once it gets going.
I recently told my Global Resource Hunter subscribers some great ways they can ride this mega-trend. I hope you’re poised to profit from it as well.
Bottom Line: I’m Bullish
These are scary times, and there is always the possibility of a black swan event around the corner to knock the markets for a loop and send share prices tumbling. But as long as the fundamentals are bullish, those are buying opportunities.
What’s more, we have a market that remains disliked, under-owned by investors and not overpriced — at least, not by price-to-earnings metrics. With bond yields so low, there are few alternatives to equities.
Do your own due diligence, and be careful. But don’t miss those big opportunities!
All the best,
P.S. My Global Resource Hunter subscribers just closed out a string of profitable positions in the past month. And right now, they are sitting on some nice open gains in precious-metals and other natural-resource trades.
Don’t miss the next round of profits — join us today by clicking here now.