Which Way Is Up?
Even in the remotest corner of the world, everyone understands the law of gravity. When you drop something…it will fall to the ground.
Interestingly most investors don’t really understand the natural gravity of stocks. In fact, they find every way possible to confuse matters with too much commentary, charts, and data.
Plain and simple, the gravity of stocks is to move up. Meaning that to move higher is their natural progression UNLESS an opposing force gets in their way.
I’d like to prove this point so you can better understand why the bull market is still in place and why we have not yet seen the highs. Plus I will share with you the signs that eventually lead to the next bear market.
Growth is the Most Natural Thing in the World
I don’t mean to get too philosophical here, but it is important to understand that advancing forward is a prime driver of the human condition. This innate desire to do things better leads to improvements in productivity and our standard of living.
It also creates greater economic activity, which is another way of saying higher profits. And profit growth is the main ingredient we investors seek when selecting stocks.
To boil it down:
Human advancement = higher economic activity = higher profits = higher share prices.
The above equation proves why the natural order of things is for the stock market to move higher. Unfortunately it’s not all rainbows and lollipops.
Boom and Bust Cycle
One sad thing about the human condition is that we are also prone to believing that the good times will last forever. This leads to excesses during the boom times that pave the way for the next bust. (And often those excesses are about people, businesses and governments becoming over leveraged).
Here is the equation for a recession:
Lower economic activity = lower profits = *lower share prices
(*average stock market decline during a recession is 34%).
Gladly the average US recession only lasts about 13 months while the average expansion enjoys a healthy 63 month reign. That means we are able to take five good steps forward for every one backwards.
What Does that Mean for the Future?
It should be clear by now that my premise is this:
Stocks will continue to advance until there are signs of the next recession.
Of course, I don’t mean stocks will go up every day, week or month. In fact, this year has been just trading sideways to modestly higher not unlike 2011. These healthy pauses can often lead to greater gains ahead.
Plain and simple, the primary long term trend will be bullish until the odds of a future recession increase. Right now the odds of a looming recession are very low. And so best, to stay in the bullish camp until some more ominous dark clouds emerge.
What to Do Next?
The above may give the false impression that just about any stock will do. But certainly you understand that some shares will do much better than others. That’s because the easy money in this bull market took place in the first five years. Now it will be slower going as the bull market matures.
To put the odds strongly in your favor, you should rely upon a proven stock rating system like the Zacks Rank with audited results of +26% per year since 1988. However, there are over 220 of these #1 Ranked Strong Buy stocks to consider at any given time.
That is fine if you are a professional investor with 60-80 hours per week to focus on researching the full list. For the rest of you, it’s usually better to consider a hand-selected group of these stocks that you can more easily put into your portfolio.
Today, I will show you 10 stocks that fit the bill. In fact, I have put my own family’s money into them. Go ahead and view them (along with new trades I will post) in the Reitmeister Trading Alert.
During the first half of 2015 we managed to beat the S&P 500 10X-over, and Hulbert Financial rates us in the Top 4% of investment letters that they track.
Thus this portfolio service, which is normally closed to new members, is now in exceptional demand. It was temporarily re-opened Wednesday but will close up again Saturday, August 8th at midnight. So if you want to check it out, I suggest you click this link right away . . .
Look inside the Reitmeister Trading Alert portfolio >>
Steve Reitmeister has been with Zacks since 1999 and currently serves as the Executive Vice President in charge of Zacks.com and all of its portfolio services and research tools for individual investors. He is also the Editor of his Reitmeister Trading Alert.