Ever since it became clear that Donald Trump won the most recent U.S. presidential election, the stock market has been on an impressive tear higher. Now everyone wants to know what the next four years will look like for stocks in the “Trump 2.0” era. Will this exciting price action last?
Well, I have six words of wisdom to offer: Embrace the boom; beware the bust.
Thanks in large part to the AI investment megatrend and long-awaited rate cuts from the Federal Reserve, the U.S. stock market has been booming for the past two years.
That is, the craze around artificial intelligence has sparked an exceptional surge in investment. Companies have been racing to create the infrastructure necessary to support next-gen AI. Indeed, Meta (META), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL) – pretty much all the world’s major tech companies continue to spend billions upon billions of dollars to build new AI data centers, create new applications, hire more engineers, etc. And all that investment has created a major economic boom.
Meanwhile, throughout 2022 – after embarking on the most aggressive rate-hiking cycle in nearly 50 years – the Federal Reserve finally slowed its pace of hikes. And here in 2024, the central bank actually started to cut rates. This has provided much-needed relief to consumers looking to finance big purchases and businesses looking to make new investments. This relief has also helped support the present economic boom.
This optimal setup has helped stocks to really soar.
Embrace the Boom; Beware the Bust
Since hitting its lows in October 2022 – just over two years ago – the S&P 500 has surged 70% higher. It is now on track to notch its second consecutive year of 20%-plus gains.
The S&P rose 24% in 2023. And so far in 2024, it is up 27%. If those gains hold, this will mark just the fourth time since the Great Depression – nearly 100 years ago – that the S&P 500 rallied more than 20% in back-to-back years.
We are unequivocally in a stock market boom.
And in our view, this boom is about to get even “boomier.”
Thanks to Donald Trump’s victory and Republicans’ newfound control of Congress, a wave of deregulation, pro-business policies, and tax cuts are likely to sweep the nation over the next few years. Those dynamics will only add to the current economic boom.
Sounds great, doesn’t it?
Sure does – so long as you remember that all market booms inevitably end with busts. It is not a question of “if.” It is simply a question of “when.”
As we mentioned before, the stock market is working on back-to-back years of 20%-plus gains. It has only done that three times before: in 1935/36, 1954/55, and 1995/96.
After the two boom years in 1935 and ‘36, stocks immediately crashed about 40% in 1937. That boom turned into a bust almost immediately.
Following the market boom in 1954 and ‘55, stocks went flat in ‘56, then dropped 15% in 1957. The boom turned into a bust after about a year.
Similarly, post-1995/96, stocks kept partying throughout 1997, ‘98, and ‘99 – only to crash about 50% throughout 2000, ‘01, and ‘02. After about three years, that era’s big boom turned into a big bust as well.
All booms of this nature turn into busts. It’s just a matter of timing.
Does that mean you should dump your stocks while you still can and head for the hills to avoid this inescapable bust?
Absolutely not.
The Final Word on Conquering an Ever-Changing Stock Market
Usually, the last 30 minutes of a movie is the best part of the film. The last episode of a TV show is almost always the best one, just as the last few minutes of a ballgame are normally the most exciting.
Similarly, the last few years of a stock market boom can often be the most profitable.
Just look at the Dot Com Boom of the 1990s.
Tech stocks had some amazing years therein. The Nasdaq Composite rallied 40% in 1995, about 20% in ‘96, another 20% in ‘97, and then 40% again in ‘98. But tech stocks saved their best for last, with the Nasdaq soaring almost 90% for its best year ever in 1999.
Then the bust started in 2000.
Point being: The best year for tech stocks in the ‘90s was the final year of the Dot Com Boom.
That’s why you don’t want to leave a stock market party early. But you also don’t want to leave too late.
So, what’s an investor to do?
Embrace the boom. Beware the bust. Ride stocks higher, then head for the exits when the warning signs appear.
Of course, that’s much easier said than done, I know.
But that’s exactly why we’ve been working to create a new investment tool that helps folks navigate through the market turbulence and all these booms and busts. And in fact, it has beaten the market every single month since we started live testing it in July.
In short, this new tool is a home-grown stock screener that I can use to give you the chance to make long-term gains – but in only 30 days or less.
That way, you can get into a position, potentially make a lot of money, and then cash out, helping to limit your exposure to the increased volatility coming our way in 2025 and beyond.
Perhaps the best part? It requires just about 10 minutes of work a month and exposure to only 10 equities at a time.
And next Wednesday, Dec. 11 at 1 p.m. EST, I’ll be unveiling this investment tool in a new broadcast that you won’t want to miss.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.
