It doesn't take rocket science to know when stocks are likely to crash.
You just have to look at the right indicators... and ignore the wrong ones.
I've been bullish on stocks for years. And I've continually told folks to stay long, despite plenty of fears in the market.
I haven't changed my tune, because the most important market indicators haven't been flashing warning signs.
Today, I'll share yet another "early warning" indicator...
Stocks tend to crash when this indicator enters dangerous territory. It's another way to know when we have the "all clear" to make money in stocks. And right now, it's telling us something important.
Let me explain...
Regular readers know I've been tracking a number of "early warning" indicators that will tell me when to start worrying about the end of the stock market boom and the arrival of the next recession.
We've checked in on some of them before here in DailyWealth, like the advance/decline line and the performance of small-cap stocks.
Simply put, these indicators are not worrying me yet. They're still giving us the "all clear" to stay long.
I'd like to share yet another simple indicator with you... one that has predicted every recession of the past 50 years.
I'm talking about the Leading Economic Index (LEI) from an independent research group called The Conference Board.
The Conference Board's LEI for the U.S. looks at 10 different economic indicators... everything from employment, to housing, to interest rates.
Importantly, this indicator has an incredible track record of predicting recessions. As you can see on the chart below, every recession of the past 50 years happened after the year-over-year percentage change in the LEI index went negative...
Again, the chart shows the year-over-year change of the LEI index. And when that goes negative, look out.
Right now, this index is showing the economy is healthy. We're nowhere near zero today... let alone going negative, like the index tends to do before a recession.
Stocks tend to suffer their worst declines during recessions. So the fact that there's no recession in sight gives us a powerful takeaway – when you look at the indicators that have a good track record as early warning signs, it's NOT time to worry yet.
We haven't even started seeing the telltale signs of a market peak... where the big gains are concentrated in just a few names, and everyone is talking about stocks.
My "Melt Up" thesis is still in place. I still expect stocks to soar dramatically over the next 12-18 months. Certain sectors could see triple-digit returns as this bull market enters its final innings.
Instead of worrying like everyone else, you need to take advantage while everyone is timid. You need to own stocks right now.
Lately, Steve and his team have checked in on several indicators that show what's going on in the economy and stock market. Catch up on what they're saying now... and read the essays here, here, and here.
Stock market declines tend to be worse during a recession. Dr. David Eifrig explains why most corrections are insignificant – and shares what a strong economy means for investors right now – right here: How to Ride out a Correction Like a 'Market Stoic.'
Today, we’re checking in on one of our favorite economic indicators…
Regular readers know we follow several companies and industries to give us an idea of what’s going on in the U.S. economy. When people are buying electronics or taking ski trips, it’s a sign of consumer confidence. And we have another way to see when folks are happy with their financial prospects…
Payment companies Visa (V) and Mastercard (MA) are great gauges of the economy. Most of the credit cards in the U.S. come from one of these companies (with roughly 340 million and 220 million cards in circulation, respectively). As people spend more – and link their cards to their digital wallets – Visa and Mastercard reap the benefits. They collect a small transaction fee with every swipe… And those fees add up to big profits.
As you can see in the chart below, these payment companies are thriving. Both Visa and Mastercard trounced the S&P 500 Index over the past year… And they’re at new all-time highs. As consumers continue to spend, expect these stocks to keep climbing…