Its extremely easy to invest in the stock market for great returns if your timeframe is long enough. You buy the index and keep buying it in a ‘dollar cost average’ way. The bet is that as long as an extinction event doesn’t reverse ‘progress’ then the index will grow with the world economy and its population. There will be lumps and bumps along the way but they will wash out leaving you a compounding 7% return. If you invested $500 a month for 30 years that would leave you with $600,000 for an investment of $180000. Without investing another penny that would bring you to $1.2m in a further 10 years.
Nobody cares however. No one wants to wait to get rich. In general most want the sort of incredible returns no one gets and end up taking on too much risk, often turning investing into a gambling habit.
So most of us are left looking at ever shorter and shorter time windows to try to extract wealth from the stock market. At the extreme the day trader nips in and out of stocks in minutes to such privations that there are controls over playing the market like a fruit machine.
Looking at the stock market over the long term is a good way to estimate the future market outcome and better time the market, not to the hour, day or even month, but in general, to help scrape a little more return by at least being able to invest a little be better than blindly. Hardly anyone cares to look at the long term, so for those that do get an edge. Where people, don’t, wont or cant look is where the signals lay.
So lets take a look at the S&P 500 over the long term horizon. The S&P500 has been making classic head and shoulders bear patterns. Its enough to make anyone nervous, run for cover, yet the magical levitation of US markets over the years remains in place and there is a striking trend to prove comfort for longs. Why actually has the market been so strong when all around is quivering from the aftershocks of the Pandemic.
We should know why. The Federal Reserve has been ziging and zagging money supply to try and keep the US economy on the rails and to do that it has to keep assets like stocks from imploding and its done a pretty good job of that. As a side note this could be considered as facilitating the runaway spending of the US government but as the folly of others should be a blank check for smart investors why complain?
Here is the chart of the S&P500
So the question is, are the US indexes heading to the moon or the turf?
Everything to do with US markets is to do with the Federal Reserves money supply management. Stocks go up because money supply goes up and by the way, it is the same for Crypto. When the Fed is tightening down goes the market and it is hard days for investors with only GDP growth and inflation to prop up prices.
The Fed will stop tightening at some point, but when? That I think will be around the time the banking system is out of excess money and that can be tracked by balances in the Fed’s ‘reverse repo’ system.
Here is that chart of that systems balances with a linear projection of the current declines of excess liquidity.
Apart from the logic behind tightening till surplus cash is gone but no further, the S&P 500 looks highly likely to hit that long term linear trend at around the same time. This should be the case with the linkage between money supply flows and the way stocks indexes trade. So both should intersect and the ‘old normal resume when they do.
This is subject to the non-appearance of major disasters as it always is, but by mid 2024 through 2025 normality should breaks out.
Another piece of good news seems to be that the run for the Presidency will be between contenders running for their final second term. As such there is no need to crush the markets after the election so as to blame the predecessor while planning to engineer an economic redemption just in time for their second term elections. As this will be a ‘legacy’ term for either Biden or Trump, the market and economy should go unmolested.
So its worth ignoring those double top, head and shoulders and hang on in their for the long term.