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Day 38: Earning & Inflows, Not Trump

The portfolio was UP (0.23%) for a gain of +1,379.58

Overall GAIN to date stands at: +$9,348.86 (+1.55%)

I see a 6% upside in the S&P 500 by the end of the year. Today the S&P closed out at a new high of 2316.10, a 6% gain over the year would have the S&P 500 at 2,455 in December 2017. How do we get there? Guess what it's not Trump. The more I try to filter all the noise, the more I hear lots and lots of noise surrounding a "Hope Trade". Hope has never been a good planning strategy so I just can't go there. I believe it's all about earnings and inflows from the bond market.

The chart below shows the US 10-year for the past 10 years with upper and lower price channel lines added in; just in case you can't see the direction of the trend. Money is steadily flowing out of bonds, and given the prices of stocks it must be rotating into stocks. In a recent article, Deutsche Bank strategist Binky Chadha makes an even stronger bull market case for a 13% gain by years end. I'm not there yet but our rational is the same.

Generally households that invest have put 2 percent of their savings into stocks. This savings amounts to about $325 Billion in annual new inflows to the stock market. Chadha calculated that for every $100 billion of new inflows we get a 5% increase in the S&P 500. If money is flowing out of bonds and the normal inflows persist we're bound to see a big increase in the stock market overall. That's how I get to my 6% gain. Please don't make me show my work the way Mrs. Lindsdale did in 4th grade. I'm still discounting that we'll see much if any repatriation of corporate overseas money; but......but if we do, the most likely use of that money will be to repurchase shares. If Apple can bring back a bunch of cash, I predict the majority of it will be used to buy back their own shares which will boost stock prices even higher.

Stay Invested

Clay Baker

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