Building Wealth Doc's note: Right now, investors want to know when stocks will finally hit a bottom.
In today's issue, Brett Eversole explains the historical indicator that shows the bottom might be here and we're on our way to a rally...
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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 recently explained to DailyWealth readers. 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 just began. 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 Index 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've just started the third year. The historical best year of the cycle kicked off on September 30.
And the news gets even better... The 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 ended with losses last week. 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.
Good investing,
Brett Eversole
Editor's note: It doesn't matter if you have money in the markets right now, or you're waiting on the sidelines. The short period we're about to enter could have the power to make – or destroy – fortunes.
And what you do in the coming days could determine your wealth for the next decade. Click here to learn more.