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The "Wall of Worry" Points to More Gains in U.S. Stocks

By Brett Eversole
Monday, July 20, 2015

Bull markets climb the "Wall of Worry."
 
They begin in the worst times... when no one believes they can. And they climb higher amid a sea of investor fear. But they don't peak until investors lose their fear and become emboldened.
 
Today, investors are scared. The "Wall of Worry" is still plenty high, as I'll show. And based on our own in-house measure of investor fear, we could see 14% gains in U.S. stocks over the next year.
 
Let me explain...
 
Last month, I showed you why U.S. stocks could still end 2015 up double digits. Today, there's another positive market signal that points to double-digit gains.
 
This opportunity comes from our proprietary "Complacency Indicator."
 
This is an index our team created to see how investors feel about U.S. stocks. Its goal is to gauge when investors are overly complacent... which could trigger a stock market correction.
 
The index ranges from zero to 100. A reading less than 30 says that investors are overly complacent and we can expect to see a market correction of 10% or more within the coming months.
 
But importantly, this indicator doesn't just signal market crashes... it can also tell us when stocks are set to outperform.
 
While a reading less than 30 shows that investors are overly complacent, a reading higher than 60 shows extreme fear in the markets. And as contrarians, that's what we like to see.
 
The good news is that we're at that level today. Take a look...
 

This index has only surpassed a score of 60 eight other times over the past 25 years. And history shows that stocks tend to outperform when that happens.
 
The table below shows the exact details of those opportunities. Take a look...
 
S&P 500 Returns
Date
3-Month
6-Month
12-Month
12/31/1990
13.6%
12.4%
26.3%
10/31/1992
4.8%
5.1%
11.7%
6/30/1997
6.0%
12.6%
28.6%
9/30/1999
14.5%
16.8%
12.0%
7/31/2003
6.1%
14.2%
11.3%
5/31/2004
-1.5%
4.7%
6.3%
5/31/2007
-3.7%
-3.2%
-8.5%
8/31/2013
10.6%
13.9%
22.7%
5/29/2015
-
-
-
Average
6.3%
9.6%
13.8%

U.S. stocks average 10% returns in six months after our Complacency Indicator hits 60... and 14% over the next year. These are both far better returns than the typical 4% six-month and 9% one-year returns in stocks.
 
What's even more impressive is that stocks have only lost money one out of eight times in the year after our Complacency Indicator hit 60... So history says it's highly unlikely stocks will fall over the next year.
 
Most investors are scared today. They're waiting for the next bear market catalyst. And they expect it soon... But stocks keep climbing that "Wall of Worry."
 
Our in-house Complacency Indicator says this fear is a good thing for U.S. stocks. And we could see 14% gains over the next year.
 
Now is not the time to sell. Stay long U.S. stocks.
 
Good investing,
 
Brett Eversole




Further Reading:

Find more of Brett's recent research here:
 
Silver prices are down 68% from their 2011 high. And they're down 27% over the past year. But one sign shows silver could be on the verge of a double-digit move higher...
 
Greek stocks fell 19% on June 29. That's the largest one-day fall we've ever seen in Greek stocks. Buying after this crash might seem like a good idea. But this is a crisis you should avoid...
 
Major currencies are rising in value... But one major currency has had a spectacular fall. And investors have fled. This gives us an opportunity...

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
iShares U.S. Insurance Fund (IAK)... insurance
W.R. Berkley (WRB)... insurance
Progressive (PGR)... insurance
American Financial Group (AFG)... insurance
Citigroup (C)... bank
M&T Bank (MTB)... bank
PNC Financial (PNC)... bank
JPMorgan Chase (JPM)... financial services
Capital One Financial (COF)... credit cards
Charles Schwab (SCHW)... online broker
Eli Lilly (LLY)... Big Pharma
CVS Health (CVS)... pharmacy
St. Jude Medical (STJ)... medical devices
General Dynamics (GD)... "offense" contractor
Palo Alto Networks (PANW)... cyber security
Macy's (M)... department stores
American Eagle Outfitters (AEO)... retail
Dollar General (DG)... dollar stores
Reynolds American (RAI)... cigarettes
Skechers (SKX)... shoes
Foot Locker (FL)... shoes
WhiteWave Foods (WWAV)... organic food
Mohawk Industries (MHK)... flooring
Walt Disney (DIS)... entertainment
Carnival (CCL)... cruises
Moody's (MCO)... ratings agency
Valero Energy (VLO)... oil refiner

NEW LOWS OF NOTE LAST WEEK
 
Barrick Gold (ABX)... gold miner
Yamana Gold (AUY)... gold miner
Eldorado Gold (EGO)... gold stock
Franco-Nevada (FNV)... gold royalties
Silver Wheaton (SLW)... silver royalties
U.S. Steel (X)... steelmaker
Peabody Energy (BTU)... coal producer
3D Systems (DDD)... 3D printing
Yelp (YELP)... online reviews
 

premium teaser

What to look for as stocks rally...
 
Cheap, hated, and in an uptrend. That's EXACTLY what we look for in an investment...
 

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