By: Dividend Sensei
The market’s meltup continues, with the Dow Jones Industrial Average having now marked 11 straight record closes. That’s not just the best winning streak in 30 years, but just 3 positive days away from the longest uninturupted number of record closes in history.
So naturally the news is full of people predicting a major market crash. After all, pretty much any way you slice it, the market is trading at its highest valuations since 2004, and at levels only bested by 1929 and 2000. BUT before you buy into the gloom and doom predictions of an iminent market crash, consider that there are five major catalysts that could cause the market to continue rising for years.
First, keep in mind that despite an epic 8 year bull market, a full 54% of Americans have no exposure to the stock market, either in regular portfolios, or even retirement accounts such as IRAs or 401Ks. That’s because, after the horrors of 2008-2009 many Americans still don’t trust the market to build long-term wealth. However, should the economy continue to recover (the New York Fed is now predicting 3.1% Q1 GDP growth based on the most recent economic reports), and wage growth with it, then rising optimism, could finally reverse this terrible trend.
Or to put another way, there is a ton of money still sitting on the sideline, which could potentially drive the market higher for another year or two.
Next we have the $2.5 trillion in offshore corporate cash, which is waiting for the President’s promised 10% repatriation holiday. that would allow for US corporations to potentially bring back $2.25 trillion in cash, much of which could fuel M&A activity or future buybacks, both of which would serve as a positive catalyst for rising stock prices.
In addition, we can’t forget that a corporate tax cut from 35% to 20%, could help boost corporate earnings by as much as 20% -25%, further spurring rising share prices, especially if it coincides with more buybacks and halt the country finally returning to the market.
Then there’s other potentially economic growth boosting actions that Congress is working on, including massive deregulations (which would boost corporate profits even more) as well as infrastructure spending, which would boost jobs, wages, and even more economic growth.
Add in the potential for tax reform allowing for 100% depreciation of capital spending in year one, and you have a strong catalyst for increased business spending, which would only further boost economic growth and corporate profits.
Now don’t get me wrong, I’m not predicting that these potential catalysts will necessarily ensure the market continues to rocket higher forever, or that we won’t get a 10%-15% correction at some point, because we most certainly will. BUT remember that market timing is the single worst thing you can do. In fact, missing just 10 of the market’s best trading days in each of the last 9 decades would have reduced your total return from 10,055% to just 38%.
BUT with there still being so many great, undervalued dividend growth stocks to choose from, the best bet for all long-term investors is to remain invested, and let the market’s awe inspiring wealth compounding prowess work for you.