E Now Is The Best Time To Be Heavily Long U.S. Stocks

Like January 1995, this is one of those rare moments when the S&P 500 is on a cusp of a massive rally. And by massive, I mean 20%, 30%, etc. Here's my rebuttal to all the doomsayers who think that the S&P will fall at least 10%.

VIX being compressed doesn't mean anything.

Some banks like UBS have pointed to the fact that VIX is very low. They believe that such a low VIX foretells a VIX spike and a S&P crash. History proves that their belief is wrong.

VIX is never at a historical low when the S&P is at the top of a bull market or before a massive correction. Historically, VIX always rises months before a bear market or big correction begins.

In addition, VIX being extremely compressed is actually a good thing for the U.S. stock market. A mere 2-3% pullback in the S&P will cause VIX to spike, thereby eliminating this problem. VIX is meant to be used as a mean reversion indicator. After VIX spikes, it means that the S&P's bottom is in.

There is literally no bad news.

Basically, everything that Trump wants to do is good for the economy (and hence the U.S. stock market).

  1. Trump wants to repeal Obamacare. Although Obamacare is good for many low-income individuals, it is a big drain on small and medium sized businesses.
  2. Trump wants to cut taxes on businesses. Cutting taxes is always good for business, no matter how much you cut it by. It's true that businesses might not hire more workers if their tax bill is cut. But with all that extra cash, they may very well decide to buyback their own stocks, which is good for the U.S. stock market.
  3. Trump wants to invest in U.S. infrastructure "bigly".

Now it's unlikely that Trump will accomplish all of his pledges. However, like Warren Buffett said, Trump will at least accomplish SOME of the above 3 goals. Accomplishing any single one of those 3 will be a boon to corporate America and hence the U.S. stock market.

The U.S. stock market rarely sells off when the economy is strong and the business environment is improving.

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Atle Willems 4 years ago Contributor's comment

I had to read this article as your view is in stark contrast to mine. With valuations at record highs, interest rates moving up, bank lending growth in rapid decline, and the shorter term growth rate of the money supply just having moved into negative territory, my conclusion is the exact opposite. It will be an interesting year.