They say history is the best teacher.
And, while it doesn’t necessarily repeat itself, it can certainly foreshadow events…
Meaning it can help today’s investors avoid the pitfalls of our predecessors.
“It’s different this time” is one of the most dangerous delusions.
What does history tell us about the direction of today’s markets?
Let’s find out…
Are We Looking At A Major Market Correction?
Despite all the trade war fears, 2019 has been a stellar year for equities so far.
Since the start of the year, the S&P 500 has gained 20%.
Historically, whenever stock prices rally by over 10% in the first half of the year, they gain an additional 7.5% on average in the second half.
But don’t start calling your broker just yet.
You see, the situation is more complicated when stocks grow too fast too soon… as they have done this year.
In the last seven decades, whenever the S&P 500 has gained more than 15% in the first six months of a year, it has pulled back by 12.1% on average in the second part of the year.
That’s bad news… but now that you’re aware of the risk you can protect yourself against it.
My recommendation is to add countercyclical assets, such as precious metals, to your portfolio ASAP.
What Typically Happens After A Fed Rate Cut
In the short term, the market likely will rally.
The Fed has been mulling over the question of a rate cut for some time. It’s looking now as if we are going to get one at the end of July.
When you look at historic data for non-recessionary periods, you see that the S&P 500 has returned between -4% and 8% in the 21 trading days before a rate cut.
Meaning, stocks are more likely to move up than down and could gain as much as 8% by the end of this month.
If you’re a risk-prone investor, you could wait until the end of the month before adding precious metals to your portfolio.
3,043 Is The “Buy” Signal You’re Looking For
However, what this ultimately comes down to is the S&P 500 breaking above the 3,000 level.
It’s a psychologically significant level, a big round figure, and investors tend to focus on those kinds of things.
Moreover, 3,000 represents a key resistance line that the market hasn’t been able to break through so far. It came close three times in the last two years, but each time a major pullback followed.
Now, the S&P 500 is once again close to that magic 3,000 number, and some financial “experts” are seeing it as a bullish signal for stocks.
However, I advise you to be cautious.
The index should break above the previous high of 2,955 by a meaningful amount (that is, at least 3%). That would put it at about 3,043, well above the heavily publicized 3,000 figure.
If, though, the market fails to reach that level, stocks will likely end 2019 lower than where they are now.
On the other hand, if the S&P 500 surpasses 3,043, I see it surging as high as 3,500.
In either case, the need for a well-balanced portfolio has never been greater.
That is why I advise all my readers to keep at least 20% of their assets in precious metals. You can read more about this strategy here.