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Nearly Six Years In... And Plenty of Upside RemainsBy
Tuesday, December 30, 2014
It's got to be time to sell, right?
After all, stocks have been going up for nearly six years now – they've got to be near the end of their run... Right?
I disagree...
Don't worry so much about where stocks have been – don't drive by looking in the rear-view mirror. Instead, look ahead.
When I look ahead, I see plenty of room for stocks to run higher. Plenty of upside remains.
Today, I'll show you one simple reason why this boom in stocks isn't over yet.
Let me explain...
My thesis since then has been that the Fed would keep interest rates lower than anyone could imagine, for longer than anyone could imagine. And I said that would cause asset prices (like stocks and real estate) to soar higher than anyone could imagine.
I called it "The Bernanke Asset Bubble." The thing is, the game is not over yet...
Janet Yellen has now filled Bernanke's shoes as the Fed chairperson. And she's doing the same thing he did... Keeping interest rates at zero.
So the situation is unchanged... The Fed is keeping rates low, and stock prices and real estate prices keep going up.
But what happens when the zero-interest-rate policy ends? What happens when interest rates go up?
Most people don't know it, but history shows stocks can do well once the Federal Reserve starts raising interest rates.
Over the last 30 years, whenever the Fed was in a rate-raising cycle, stocks went up. It's hard to believe, but it's true.
The path that stocks take around the time of the first interest-rate hike is interesting, based on history...
Stocks rise as the interest-rate hike approaches. Then once the interest-rate hike happens, stocks have a relatively minor correction – before heading on to new highs! That has actually been a typical path.
The following chart takes the "average" of what has happened when the Fed has raised interest rates over the past 30 years. There's no guarantee it will happen this way this time around... But think of it as what could happen out to 2017, based on history.
For this chart, we assume that the Fed will raise interest rates in January 2016.
 Again, we can't guarantee that what has happened in the past will happen again in the future. But history is our best guide. And the history is clear...
Stocks have gone UP whenever the Fed has been in a rate-raising cycle over the last 30 years.
So rising interest rates don't mean the end of this bull market.
Yes, we are nearly six years in... and yes, the Fed will raise interest rates soon... but based on history, we don't need to fear those things. There's still plenty of upside in this market.
Tomorrow I'll show you one more reason why I don't expect the Bernanke Asset Bubble to end yet... And why stocks could soar as much as 50% from here before the end arrives.
Good investing,
Steve
Further Reading:
Stocks have been going up for years – but Steve says "there is no life expectancy in years for a bull market..." Get all the details here: Get 'One Up' on Everyone Else in the Markets With This Knowledge.
"Want to be a great investor?" Steve asks. "Then figure out what the world's greatest investors do... and do that. It's that simple." Learn "the four obsessions of the world's greatest investors" right here.
Market NotesSTEVE'S TECH STOCK IDEA CLOSES IN ON A 100% GAIN If you took our advice to take a "double long" position in cheap tech stocks, you've done extremely well...
Since May 2013, Steve has made a strong case for buying blue-chip technology stocks like Intel, Microsoft, and Google. These companies hold dominant positions in their industries, huge cash hoards, and low valuations.
Steve's favorite way to get exposure to this sector has been the ProShares Ultra Technology Fund (ROM). This fund aims to double the return of a basket of tech stocks.
As you can see below, the fund continues to soar. Since Steve's May 2013 essay, the fund is up almost exactly 100%... and just set another new all-time high last week. The rally in tech stocks is still on.
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