“Do NOT fall out of the boat!!”
I was 17-years old and thought I was invincible. My class was on a white water rafting expedition and I was cutting up at the front of the boat. That’s when I saw the pale look on our guide’s face.
I can still remember the tension in his voice as he barked out the orders for our next set of rapids.
“Diamond Splitter is a class four rapids! And the next one — Hell’s Hole is a class five. If you fall out of the boat you will drown. Do NOT fall out of the boat!!”
That was enough to get my attention. I wedged my foot under the edge of the boat and held on for dear life.
When we emerged from the back-to-back rapids I was soaked. But safe. And full of adrenaline. What an amazing ride!
The first few weeks of 2018 have been similar for investors. Stocks took the solid gains from 2017 and added turbo speed! The first six trading days of the year represented the best start for markets since 1964. And in the first two weeks of trading, the S&P climbed at a rate that would cause the market to triple by the end of the year.
Talk about class five rapids!
Well, if you’re worried that this market is becoming too hot to keep your money invested, I’ve got one piece of advice for you…
Do NOT fall out of the boat!!
There are many reasons why this market should continue to rally. And you don’t want to be caught sitting on the sidelines while stocks keep climbing!
Economists have a term for chain reactions in the market. It’s called the “trickle down effect.”
Here’s how it works…
A positive thing happens in the market to drive initial gains. Maybe it’s a stimulus package that pays for infrastructure projects. Maybe it’s a tax cut. Or maybe it’s a technology advance that drives productivity.
The initial “drip” could be fairly small. But the chain reaction can eventually lead to much larger benefits.
For instance, a small-town street renovation requires a handful of new paid laborers. Those workers then spend more money at local retailers. Meanwhile, better roads bring more traffic through a town – helping to accelerate retail sales.
Over time, the retailers hire more sales staff and buy more products from nearby manufacturers. Those manufacturers have to ramp up production which means new hires. The owners of the manufacturing companies collect more profits and decide to build a local golf course.
That golf course hires more people and attracts more tourism. And on and on the story goes.
The trickle down effect from one small infrastructure project can lead to much bigger gains for an entire community.
This trickle down effect is exactly what we’re seeing in the markets today. Only instead of a stream of economic growth, we’ve touched off a torrent of profits comparable to the Niagara Falls!
Any time we hit new highs, or accelerate big gains in the market, it’s natural to want to take a step back. After all, this is as good as it could possibly get, right?
Well it doesn’t always work that way…
The stock market can actually continue to trade higher for much longer than investors expect… especially if there is a strong “trickle down” effect in play. Better yet, if there are multiple “trickle down” effects pushing stocks higher.
A few weeks ago I told you about how a strong housing market, combined with the rising stock market, and a strong jobs market has led to big-time gains for our economy.
As if that market driver wasn’t enough, we’ve also got a second torrent of gains from the December tax cuts. And the benefits from lower taxes are MUCH bigger than the media is giving them credit for.
Just this week, Citigroup announced earnings for the fourth quarter. While the bank took a big $22 billion one-time hit for paying taxes on overseas earnings (and other deferred tax write-offs), the long-term benefit from the new tax plan will be much larger. In fact, Citi expects to pay $60 billion to shareholders over the next three years.
Now, multiply gains like this across many more blue-chip stocks and you’ll see that there are huge gains available to investors - gains which can be reinvested into new share purchases - gains that will pay for anything from family vacations to real estate purchases.
Gains that will drive our economy forward, and snowball into higher stock prices and even more benefits for Americans.
So my advice to you?
Do NOT fall out of the boat!!
Keep your investments working for you. Ride the market trend higher. And stay tuned to The Daily Edge as we cover the best opportunities crossing our radar.
Here’s to growing and protecting your wealth!
Zach Scheidt
Editor, The Daily Edge
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