At this point, it seems like a slam dunk that we will have another stimulus passed in the next few weeks. The hardest part of the whole thing is figuring out if we are going to spend 1 trillion or 2 trillion? At the end of the day, it’s just a trillion dollar difference. (Sorry for the sarcasm) But what is going to happen to the market once it is passed? The old saying, those that don’t learn from history are bound to repeat it, comes into play here. Usually, we wouldn’t have any history to go by when the government spends trillions to boost the economy. Fortunately for us, they just did it back in March and we will be able to use that as a rough estimate on how the market will react. How much will the market go up? Keep reading to find out and make sure you are ready to take advantage of it. (I know I am!)
Let’s get right into my guesstimet (New word for the day) on how the market is going to react, before and after the Cares 2 Act is agreed upon. I want to start with the pregame plan for investing in the market up to when the Democrats and Republicans actually agree to a plan. The news will be very negative and I am predicting that you will see selloffs in the market because of this. It happened the first time around with the original Cares Act and I see no reason why it wouldn’t happen again. I am so convinced of this, this I switched all my holdings in my main portfolio over to SDOW and so far, I couldn’t be happier. The last two days have been just plain awful for the market. I think investors were expecting a bigger plan from the Republicans, but only a trillion dollars when the Democrats were asking for three trillion may have underwhelmed everyone, thus the down days over the last few trading periods. We will finish the week off with a red day and probably start out the same way on Monday due to no agreements. But what is the long game you say?
So what did happen after the first Cares Act was signed and the sweet money started rolling out to everyone across the country? Well since you are curious and I have a bunch of free time to do the research, the S&P 500 closed the day that the President signed the original Cares Act into law at 2541. We are about 15 weeks passed that day and the market has changed just a tad since then. It is roughly 27% higher and mounds of money have been made. I want you to think about that number above for a minute. 27% is a ton in a matter of 15 weeks. That gives us about a 100% annualized return. Doubling your money in a year in a straight ETF matching the market is unheard of. Image if you invested like I wrote here? You would be earning almost 300% in a year if those numbers continued. The big question is will the gains continue?
I am very confident and in saying that the gains will ABSOLUTELY continue after the Cares Act 2 is signed into law. The only question that I think remains is how supercharged will the market become? It will continue to grow, even though we will be facing a ton of headwind after the initial gains. My theory is that the government will allow inflation to go above their 2.5% goal and use it to devalue the national debt over the next few decades as well as hike taxes up on everyone. (How else are they going to get their money back from all these handouts?) With inflation running higher over the next few years, you well may want to start hedging your portfolio with some solid gold and silver purchases, but that will be in my next article to give you the exact stocks I am looking at. (Which should be finished in a matter of hours)
To finish this off, I am going to say that the market will have a nice 10-15% rally after the stimulus is passed, then fall into a pattern of ups and downs with little movement over the next 6-12 months. Could the market go higher than that? I am thinking not likely. The only way that would happen is if there was a third stimulus, which is not out of the question. This will all depend on the timing of the vaccines and treatments for Covid-19. Have a great day folks and remember to sign up for my newsletter over to get up to the day information about stocks and portfolio management. (And it is all FREE!!!)