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The U.S. Stock Market Is More Expensive – And Therefore Riskier

Today, the U.S. stock market is more expensive – and therefore riskier – than at any time in the past century. You must understand that risk… because last year’s roller coaster ride isn’t over yet…

The U.S. Stock Market Is More Expensive – And Therefore Riskier

Today, the U.S. stock market is more expensive – and therefore riskier – than at any time in the past century. You must understand that risk… because last year’s roller coaster ride isn’t over yet…

By Dan Ferris, editor, Extreme Value

What if one year ago, you knew that over the course of 2020, a pandemic would shut down much of the global economy – creating the steepest economic contraction since the Great Depression…

Thousands of restaurants and other businesses would close their doors – leaving millions of Americans unemployed and desperate…

Violent protests would occur in dozens of American towns and cities…

The stock market would hit a new all-time high in late February only to plunge 34% in about one month…

The U.S. Federal Reserve would cut interest rates effectively to zero and print roughly $3 trillion to support the economy and the financial system…

And Congress would sign off on an unprecedented $2 trillion stimulus package – mailing personal checks directly to people’s homes.

Assuming you knew all this one year ago, what would have been your guess for the performance of various asset prices this year?

Probably nothing like what we got.

Today, the U.S. stock market is more expensive – and therefore riskier – than at any time in the past century. You must understand that risk… because last year’s roller coaster ride isn’t over yet…


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The stock market soared 68% off its March bottom last year. Would you have thought new all-time highs were even a remote possibility after that precipitous drop?

Would you have thought that despite a raging pandemic, political upheaval, and civil unrest, stocks would surge to their most expensive valuation in history – even more expensive than the 1929 and 2000 market tops?

I’ve occasionally said that a wider range of outcomes for the price of a given asset indicates higher risk. For example, there’s a much wider range of outcomes for small-cap mining stocks (which can soar hundreds, even thousands of percent – or collapse entirely) than for Treasury bonds (which pay 1% a year for 10-year bonds today).

The stock market has made higher highs since I got bearish in 2017… But it has also made lower lows. In other words, a wide range of outcomes occurred.

The more expensive stocks become, the riskier they are to own. And that’s what we’re seeing today…

The best two metrics to demonstrate how expensive stocks are today are the S&P 500 price-to-sales (P/S) ratio and the ratio of total U.S. market cap to U.S. gross domestic product (“GDP”).

Over the past century or so, whenever the P/S ratio has been high, the market has tended to perform poorly, sometimes for many years. At the peak of the dot-com bubble in March 2000, the P/S ratio was 2.3. Today, it’s about 2.7.

The total market-cap-to-GDP ratio was pioneered by value guru Benjamin Graham and often cited by his prized pupil, Warren Buffett. It, too, has never been as high as it is today. It peaked at 140% in 2000 and 105% in 2007. Now it’s 188%.

I also follow the stock market valuation work of economist and asset manager John Hussman of HussmanFunds.com. He tracks five metrics, including the P/S ratio, that have all correlated negatively over the past century with subsequent 10- and 12-year S&P 500 performance. Roughly 90% of the time when they’ve been high, the S&P 500 has performed poorly for a decade.


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In a recent market comment, Hussman wrote…

Presently, I expect that the completion of this market cycle is likely to involve a loss in the S&P 500 on the order of 65-70%. I realize, of course, that this sounds insane. The problem is that this projection is fully in line with a century of evidence and is consistent with the extent of market losses that would be run-of-the-mill given present valuation extremes.

Hussman estimates that a portfolio of 60% S&P 500 stocks, 30% long-term Treasury bonds, and 10% Treasury bills will lose 1.7% per year for the next 12 years. He estimates the S&P 500 by itself will lose 3.6% per year for the next 12 years.

Asset manager Jeremy Grantham’s firm, GMO, has studied a couple dozen asset bubbles throughout history. It also publishes seven-year return forecasts for various asset classes. Grantham recently called the current market a “‘real McCoy’ bubble” and added, “It’s truly crazy.”

GMO’s seven-year annual return estimates for all U.S. equities and bonds, international large-cap equities, and international bonds are negative. Its only attractive forecast is for value stocks in emerging markets, at 9.1% per year.

With stocks more overvalued than at any time in the past century, it’s time to plan accordingly. Risk is high today… And we’ll likely see years of underperformance when this bull market ends.

Greg Diamond Ten Stock Trader: This Pro-Trading Secret Could Have Caught the 2020 Crash

The technical analysis is much more than trendlines and charts… It is understanding the past to profit in the future. The essence of technical analysis – understanding how history repeats in the markets. This concept is lost on many investors. 

The technical analysis is much more than trendlines and charts… It is understanding the past to profit in the future. The essence of technical analysis – understanding how history repeats in the markets. This concept is lost on many investors.

By Greg Diamond, editor, Ten Stock Trader

“I’ll give you $1,000 if you burn that book right now.”

I was 22. Sitting at my desk, I had been lost in my reading – studying for my Chartered Financial Analyst (“CFA”) exam.

I had started at the hedge fund just a few weeks before. My boss had trained under a trading legend. It was a huge opportunity to work with him. I was excited, but aware of the pressure. I wanted to learn as much as I could as quickly as possible.

But I was startled when my boss walked up and told me to burn my books. What the heck was he talking about?

It turned out this would be the beginning of an obsession. This boss would lead me down an entirely different path than I had imagined. And I never did end up getting that CFA certification…

Today, I want to share the path I chose instead. It taught me an entirely different way of looking at the markets. And once you understand this, you can start learning to trade like the pros do…


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Let me first tell you what my boss said next that day (I’m paraphrasing a bit)…

Look, if you want to understand risk, if you want to understand trading, if you want to understand portfolio management… you can’t just focus on fundamentals. It’s not that fundamentals don’t matter. But to get really high returns and really exceptional trading results, you have to understand… how markets move and what markets move, and the psychology behind why markets do what they do.

You probably know there are two schools of thought when it comes to looking at the market. There’s fundamental analysis and technical analysis… And he wanted me to focus on the technicals.

The CFA exam and materials focus almost entirely on fundamental analysis. They go deep into the weeds of debt, profits, and management teams. And while all that is important… what my boss was trying to tell me was that he followed a different path.

I’m not saying that fundamental analysis doesn’t matter… It does. Great businesses with a history of making money and paying good dividends through both good times and bad times are vital for “buy and hold” strategies. But when it comes to trading and understanding why price behaves the way it does, technical analysis rules the roost.

Technical analysis focuses on the price behavior of a stock or asset through various indicators and price patterns.

As my boss said… “Technical analysis focuses on now, fundamentals on what was.”

To be clear, fundamental analysis works for a lot of people. But it’s not how I invest…

I spent more than a decade on Wall Street trading multimillion-dollar portfolios across multiple asset classes.

Gold, crude oil, foreign exchange (“FX”), stocks, futures, options, copper… I traded all of it.

Within weeks of joining the hedge fund, as I told you about earlier, my boss taught me the greatest lesson of my career.

Eventually, after years of intense studying, and a formal examination in front of the board of Chartered Market Technicians, I received my “CMT” designation.

Technical trading became my bread and butter. And I realized that this approach to the markets helps the pros trade with one thing in mind… “History repeats itself.”

The ups and downs of the market are nothing more than the graphic representation of human behavior… expressed on a chart of buyers and sellers. And this market behavior tends to repeat.

Here is a perfect example – a type of technical analysis called “intermarket analysis.” This served as a warning at the start of the financial crisis in 2007… And it repeated earlier this year, before the COVID-19 crash.

Intermarket analysis is based on correlations between asset classes… When one of these asset classes turns down, it may be a warning sign for other asset classes (stocks, in this case).

We know this because these chart patterns have shown up before… and other assets have fallen. Take a look…

The S&P 500 Index (blue line) and U.S. 30-year interest rates (black line) traded in tandem at the end of 2019. The “trade war” with China was calming down, and both asset classes were moving in the same direction. All was well.

But then, as you can see, the correlation broke down early this year.

Now, look at the red lines… See how stocks made new highs, while interest rates failed to do the same? That was a warning.

The “fundamentals” looked fine. But I could hear my boss’s words in my head… The only thing that mattered was what prices were signaling.

This is an extreme example, given the crash that followed. But it was a warning… and one that worked well.

This is the essence of technical analysis – understanding how history repeats in the markets. This concept is lost on many investors. They simply don’t understand and aren’t willing to put in the time and effort that’s necessary. But pro traders know that you can use this approach to make outstanding returns.

That’s why technical analysis is much more than trendlines and charts… It is understanding the past to profit in the future.


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Editor’s note: By following Greg’s recommendations this year, you could’ve doubled your money nine different times – without buying a single stock. And now, he’s making another bold prediction. On December 23, Greg expects a huge move that could either hand you one of the biggest, fastest payouts of your life… or set your retirement back by years. Get the full story here.

Dow Could Hit The 40,000 Point Level

The Dow Jones Industrial Average just set a new record. It crossed the 30,000 mark for the first time ever last month. While the number itself is symbolic, the rally we’ve seen in recent months has been nothing short of incredible.

The Dow Jones Industrial Average just set a new record. It crossed the 30,000 mark for the first time ever last month. While the number itself is symbolic, the rally we’ve seen in recent months has been nothing short of incredible.

By Chris Igou, analyst, True Wealth

The Dow Jones Industrial Average just set a new record…

It crossed the 30,000 mark for the first time ever last month. While the number itself is symbolic, the rally we’ve seen in recent months has been nothing short of incredible.

The Dow is up 63% in just nine months since the March bottom. And that blistering rally has a lot of folks questioning what happens next.

My answer is simple… Dow 40,000!

That’s not a wild prediction, either. It’s simply a bet that history will prove to be correct once again.

You see, the 30,000 level is a major breakout. And when major breakouts happen, more gains usually follow. In fact, 100 years of data show us more outperformance is likely from here.

That means Dow 40,000 could be the next stop. And you really want to own stocks now.

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The Dow has made an incredible move higher in recent months. Again, it’s up 63% since bottoming in March.

That kind of rally is amazing for a major index. And it’s even more impressive given what has happened in the economy and around the world during that time.

Now, you might think that the rally has to cool down soon… or that a pullback is likely after such a strong run higher. You might even think that hitting the 30,000 milestone is itself a warning sign of a coming decline.

History says that’s not the case. Instead, buying after new highs is a good thing.

Since 1920, the Dow has continued to outperform after hitting a new 52-week high. And as the chart below shows, we have this exact setup today. Take a look…

This rally has been strong. The Dow is back in uncharted territory as it hits new all-time highs. But this breakout doesn’t mean the rally is over…

Buying after similar new highs has led to winning trades 74% of the time. And history shows that at times like these, you can expect to outperform in the months ahead. Take a look at the table below…

The Dow has returned about 6% a year since 1920. But it performs even better after new 52-week highs like today’s…

Similar cases have led to a nearly 5% gain in a typical six-month period. And they can lead to an 8% gain over the next year. That’s significant outperformance.

Those are the gains you might normally see after this kind of setup. But if the trend continues like it is right now, the gains could be much higher… The biggest move after one of these instances was a 48% gain. That would be more than enough to eclipse the 40,000 level in the Dow.


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I’m not betting that will happen in the next year. We can’t know for sure what’s going to come next for U.S. stocks. But the smart bet isn’t on a crash… It’s on higher highs from here.

The Dow has plenty of room to run. And 40,000 could be the next stop. Either way, you want to own stocks now.

How Much Tesla Will Move the Market?

Tesla – the electric-car maker and one of the most polarizing stocks in decades – is stepping into the big leagues. So today, we’re going to answer a simple question: “Just how much sway will Tesla have over the market?”

By Vic Lederman, analyst, True Wealth

Tesla – the electric-car maker and one of the most polarizing stocks in decades – is stepping into the big leagues.

Standard and Poor’s is adding Tesla to the S&P 500 Index. And the media’s take on it can be summed up with one word… “finally.”

But it only takes a passing knowledge of the company to know that this assessment is a little dubious. The company is the poster child for eccentric leadership. And its share price is highly volatile.

Despite that, the company will be the largest to ever join the S&P 500. In fact, it looks like it will be a top 10 holding.

That means that if you own anything that tracks the S&P 500, you’ll soon be a Tesla shareholder. But don’t overreact.

You might find Tesla’s leadership as distasteful as I do. But that doesn’t mean you should alter your portfolio to avoid it.

Remember, the S&P 500 is weighted by market capitalization. Simply put, the bigger the company, the more influence it has over the index.

So today, we’re going to answer a simple question: “Just how much sway will Tesla have over the market?”

Let’s get right into it…


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Tesla’s market capitalization is more than $460 billion as I write.

That puts Tesla in the top 10 S&P 500 companies. But how much sway will that give Tesla over the index?

Well, health giant Johnson & Johnson (JNJ) and financial-services firm JPMorgan Chase (JPM) are near Tesla in the top 10, each with market caps around $400 billion. Each company accounts for about 1.3% and 1.2% of the S&P 500, respectively. So, we can expect Tesla to end up with a weighting of over 1% based on this.

Consumer-electronics giant Apple (AAPL), for comparison, is at the top of the pile. It makes up nearly 6.5% of the S&P 500… Or about five times more than where Tesla will likely end up.

Still, when you stop to think about it… it becomes obvious that the top companies really do account for the majority of the market.

In fact, the top 15 companies make up 32% of the S&P 500. And the top 50 account for more than half. The bottom 50 account for just 1% of the S&P 500.

So clearly, the larger companies are much more important to the performance of the market. But if you’re not a Tesla fan, how much should you worry about it joining the index? And to our greater question… how much will Tesla move the market?


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The answer is: not much.

All it takes to see this is a little bit of math.

Even on a 25%-day for Tesla (in either direction), it would only move the market about 0.25%. Tesla is volatile, unusually so. So those 25%-days do happen. But once you put it into the broader context of the index, that volatility gets watered down.

So, is it possible that this poster child for eccentricity will move the market? Sure. On its biggest days, Tesla will contribute to the volatility of the S&P 500.

But on most days… it won’t matter at all.

Recent Pullback Is a Bullish Sign for Stocks

Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we’ll show you today, it’s not the most likely outcome. In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions. Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we’ll show you today, it’s not the most likely outcome. In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions. Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

By Ben Morris and Drew McConnell, editors, DailyWealth Trader


On Friday, the benchmark S&P 500 Index broke down…

It dropped below its intermediate-term trend line – its 50-day moving average (50-DMA) – for the first time in four months.

The trend is still up. But a lot of investors and traders start to worry when stocks fall below this widely followed level.

Last week, though, we told that this pullback could actually be a great buying opportunity…

Timing your trades isn’t always about nailing the exact right moment to get in… If you can simply identify higher- and lower-risk entry points – and take action when your risk is reduced – you’ll give yourself a major advantage in your trading.

With that in mind, the question we’re asking today is, “Is right now a higher- or lower-risk moment to buy stocks?”

The answer might surprise you…


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To help us answer this question, we looked at similar occurrences in the S&P 500 over the past 50 years. Specifically, we looked at the S&P 500’s returns following its first break below its intermediate-term trend line in at least three months.

In the chart below, you can see when this happened on Friday…

A lot of traders consider a break below the 50-DMA to be a bad sign. But let’s draw our conclusions from the numbers…

Over the past 50 years, the S&P 500 has held above its 50-DMA for at least three months 39 other times. (Friday was the 40th time.) The table below shows how the index performed following the first day that it closed below its 50-DMA…

On average, stocks climbed across all time frames. In the following two weeks, stocks were higher about 60% of the time. One and two months later, that percentage jumped to about 70%. And three months later, stocks were higher more than 80% of the time.

Those are good odds, especially when we compare them with the S&P 500’s “normal” performance…

The table below shows the same metrics for the S&P 500 for the past 50 years with no limiting criteria. In other words, the first number in the first row is the average two-week return for the S&P 500 over the past 50 years.

You might be surprised to see that the S&P 500’s average and median returns were better than normal after it broke below its 50-DMA across all time frames. The percentage of the time that stocks were up was better after the breakdown, too.

How can we explain this?

Well, if the S&P 500 has held above its 50-DMA for at least three months, it typically means the stock market is in a strong uptrend. And when the market is in a strong uptrend, you want to own stocks.

These results suggest that one of the best times to buy stocks in a strong market is after a pullback, like when the S&P 500 drops below its 50-DMA… as it did on Friday.

Here’s our takeaway…


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Right now, a lot of folks are worried that stocks are about to start another big decline. That’s a possibility, of course. But as we showed you today, it’s not the most likely outcome.

In the weeks and months following our 50-DMA breakdown signal, stocks were higher across all time frames, on average. And stocks performed better more often than in all market conditions.

Our study shows that rather than this being the time to sell, stocks are likely a good buy today.

It probably doesn’t feel like the right thing to do right now, but if you have some cash on the sidelines, you may want to consider putting it to work. At the very least, don’t exit your bullish positions right now unless they’ve triggered your stop losses.

We can’t promise you that today is the perfect day to buy stocks. But we can tell you – with 50 years of history backing us up – that your risk in the stock market is reduced. And generally, that’s the time to buy, not sell.

Our advice for stocks traders and investors right now is to stick to your stop losses and to stay long.