What's Next for
The Stock Market
There are two reasons why I feel like this is a bad time for stocks, and that if you aren’t already out of the market, or investing contrary to the market, then you could be in for a tough time. The first reason is: there are so many challenges facing the market right now. I’ve heard it said that “bull markets don’t die of old age” – but I believe that there are enough challenges facing the stock market and the economy right now to keep the market down for a while. There are a number of political arenas that could pose danger: North Korea, Iran, Syria, Iraq, Saudi Arabia, and others. There is the current Trade War the current administration is waging on China and other countries. There rampant inflation and political unrest in several Latin America countries. The list goes on and on.
The second reason is: the business cycle. We need to consider the business cycle when we make investment decisions. The current business cycle, which is described in another page on this website, is nine years into a nine year cycle (if we are talking bottom to bottom). The last recession, also known as The Great Recession, ended in 2009, so I had expected the next recession to occur sometime in 2018; however, the Tax Cuts and Jobs Act that President Trump endorsed has temporarily extended the current business cycle. Since recessions are very bad for the stock market, I would expect a bear market through the end of 2019.
What will drive the market of the 2020s? Is it going to be a stock market boom? Will it be like the 1990s? Or will it be more like the 1920s? I think it will be a little of both. It will be a little like the 1920s, in that it will occur despite the effects of inflation. It will also be like the 1990s, in that I believe that innovation will drive the market, like the Internet did for the turn of the century. The challenges of energy and the environment will create opportunities for creative people all over the world, and this will provide a launching pad for new products that will make our lives less dependent on fossil fuels and our environment less subjected to pollution and greenhouse gases.
Since the cycle for the Stock Market is 36 years, and half of the cycle is 18 years, the bottom of the current cycle should have occurred in 2018 (2000 + 18 = 2018), but was delayed by the fiscal stimulus of the tax cut. The next peak of the Stock Market cycle should occur around 2036 (2000 + 36 = 2036).