Finding a bottom in stocks isn't about finding a magic indicator...
It's a messy and scary process. And there isn't a perfect guide. So your only goal is to put the odds in your favor.
Simply put, finding the bottom is all about the weight of the evidence.
Stocks are incredibly hated, as I explained last week. And that tells us big upside is possible. Today, I'll share one more strong piece of evidence that gains are likely from here.
You see, according to history, the best 12 months for stocks are about to begin. Let me explain...
When you study decades of stock market data, cycles tend to pop out. And the U.S. election cycle is about as obvious as it gets.
Stocks tend to follow a similar theme throughout the four-year presidential election cycle. Here's how it typically goes...
Stocks perform OK during a president's first year in office. Then, in the second year, they go through a major slump. That's when the worst returns show up. Many believe this happens because of the uncertainty around midterm elections.
After the midterms, certainty returns to the markets... and Year 3 leads to the biggest returns. Year 4 is also usually another solid year as we head into the next presidential election.
This cycle is clear if you look at year-end data. But you can improve on that even more by looking at the returns from the end of September through the following year.
Since 1950, more than half of the market's total return during the election cycle happened in Year 3. Take a look...
Since 1950, the S&P 500 has returned 7.9% per year. But those returns are inconsistent. As you can see, only Year 3 has led to massive outperformance.
That single year led to a typical return of 19.8%. Again, that makes up well over half the typical return of those four years combined.
I'm telling you this today because we're just two weeks away from the start of the third year. The historical best year of the cycle kicks off on September 30.
And the news gets even better... The upcoming period from September 30 through March 31 is also the best for six-month returns. It has typically led to returns of 14% since 1950.
There's no guarantee that stocks will boom, of course. Not every year is the same, and stocks have sometimes lost money during Year 3 in the past. But the cycle is working out so far...
Year 2 of this cycle will certainly end with losses. And losses always set up future gains. So this election-cycle setup is one more signal that the odds are in favor of a stock boom.
"The smart bet is on much higher prices over the next year," Brett Eversole says. We recently got another strong signal that stocks could turn higher. This has only happened a few times in the past decade-plus – but the returns that followed were spectacular... Read more here.
Today's bear market has crushed growth stocks – but losses pave the way for future booms. Many of these stocks have been punished unfairly. And it could be setting up a buying opportunity in some of the market's strongest performers... Learn more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Change Healthcare (CHNG)... health care technology
e.l.f. Beauty (ELF)... cosmetics
Scorpio Tankers (STNG)... oil tanker shipping
NEW LOWS OF NOTE LAST WEEK
Alphabet (GOOGL)... tech "World Dominator"
Meta Platforms (META)... social media giant
Adobe (ADBE)... cloud services
Nvidia (NVDA)... chip giant
Intel (INTC)... chipmaker
NortonLifeLock (NLOK)... cybersecurity
Infosys (INFY)... IT consulting
Digital Realty Trust (DLR)... data-center REIT
Rogers Communications (RCI)... Canadian telecom
Quest Diagnostics (DGX)... medical data
Garmin (GRMN)... GPS and wearables
Whirlpool (WHR)... appliances
Church & Dwight (CHD)... household products
Tyson Foods (TSN)... chicken, beef, and pork
Scotts Miracle-Gro (SMG)... plant food and cannabis
FedEx (FDX)... package delivery
Toyota Motor (TM)... automaker
CarMax (KMX)... used cars
TransUnion (TRU)... credit reports