Happy New Year!
The “Santa Rally” hit in a big way with the S&P 500 continuing to rise in a clear bullish channel (blue lines) throughout December. After a run of this magnitude, stocks are due for some kind of retrenchment.
In investing, nothing goes straight up or straight down. And a 3%-5% correction would be totally normal without ending the bullishness. Support is at 3,200 or 3,175 for the S&P 500 (red lines).
However, that dip should be bought. Indeed, by the look of things, 2020 will be a fantastic year for stocks.
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Consider the following:
1) Money supply is growing at 7.4% per year.
2) The Fed is putting roughly $100 billion into the financial system every month.
3) Corporations will buyback nearly $600 billion worth of their own stock next year.
4) Investors are sitting on $3.4 trillion in cash.
Between the Fed and corporate buybacks alone, there will be $1.8 TRILLION in liquidity hitting the financial system next year. That’s an amount roughly equal to the GDP of Italy.
Now consider what happens if stocks and the economy continue to fare well and investors choose to move some of the $3.4 trillion in cash back into the markets.
We’re talking about the S&P 500 hitting 4,000 by year-end 2020.
If you think this sounds extreme, consider that stocks just broke out of a multi-year consolidation pattern similar to that of 2014-2017 in late last year. During the last breakout, the market roared higher by 700 points… and that was without the Fed easing monetary policy.
A similar move this time around would put the S&P 500 at 3,600. Throw in the Fed’s extreme monetary easing and 4,000 on the S&P 500 isn’t hard to reach.
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Chief Market Strategist
Phoenix Capital Research