The Trends Journal was first to forecast the Trump Rally after Donald Trump won the race for the White House in November 2016. And, this past December, with equities prices soaring, we were the first to predict a 10-percent market correction in 2018.
We now forecast that the turbulence hitting Wall Street and rattling equity markets worldwide, signals the beginning of the end of the Trump Rally. Stock prices may go higher, but the long-term trend lines are heading lower.
Yes, with the massive spending bill just passed by Washington at a time when the economy is solid and stimulus is not needed – coupled with President Trump’s bountiful tax breaks to corporations, whose earnings are already robust – there will be more money to gamble in the markets.
Further, Trump’s generous tax plan, which also allows corporations to repatriate cash stored in overseas banks, will empower companies to buy-back their own stocks, thus stabilizing, and even pushing markets higher.
However, with price-earnings ratios near the high end of their ranges by historical standards, and markets highly overleveraged with Exchange-Traded-Funds and money flowing out of managed funds and into index funds, the gambling fever that drove the Dow up 45 percent since the Trump election is not sustainable.
Indeed, so over-valued and over-leveraged are the markets, that all it took to send global equities into a tailspin recently was the slightest whisper of rising inflation and higher interest rates following a somewhat favorable US jobs report.
And now, with the latest US Consumer Price Index rising more than expected, those higher inflation/higher interest rate fears, i.e. less cheap money to juice the markets, stocks will trend lower.
TREND FORECAST: Absent a wild card/black swan event, there is not a confluence of multiple factors at this time to signal an impending market crash. However, with markets over-valued and way over-leveraged, threats of a 20-percent, Bear market correction increase.
What’s next? Watch gold. The ultimate safe-haven asset in times of economic and geopolitical turmoil. Prices should have spiked in response to the recent massive Wall Street sell-off. Instead, prices declined because rising interest rates make non-yielding gold less attractive.
Now, gold prices are edging higher. Should prices suddenly spike and stabilize above the $1,450 range, it will signal serious stock market panic that will override rising interest rate concerns, driving gold prices higher by several hundred dollars.