It’s been widely reported before – the Dow Jones is in bubble territory so get out now! However, new evidence suggests that at least some sectors within the stock market are due for a correction. While I don’t have a specific time forecast as to when volatility might occur, the present dynamics are too unusual to ignore.
Both the Dow Jones and the broader S&P 500 indices are in unprecedented territory. Essentially, any move higher from here results in a record-breaking swing. That’s amazingly good news for traditional buy-and-hold investors – all they have to do is to buy funds that mimic the blue-chip stock market to realize fairly hefty, double-digit returns.
However, the major problem with this “strategy” is that it can’t possibly last. As many of our Crush The Street readers know, the Dow Jones and general stock market investments are zero-sum games. In order to win, someone else has to lose. As precious metal expert Mike Maloney likes to put it, wealth isn’t created but merely transferred from one party to another.
One only needs to look at individual stock market sectors to realize the potential for serious trouble. The vast majority of S&P sectors are sitting on double-digit, trailing-year returns. In fact, only one sector, energy, is in the red.
The general public views this as a sign that the Dow Jones is backed by a rising economic renaissance. While I don’t entirely dismiss that idea given President Trump’s administration, I see extraordinary contradictions with so many sectors seeing green.
Primarily, not all stock market sectors can rise simultaneously. For example, a lower energy sector implies that fuel prices are down; therefore, it’s a boost to everyone in the economy. However, the big banks are often funding energy firms. If the sector continues to fall, they risk defaulting on the banks. We all know what can happen when enough big players fail to pay their debts.
Looking forward, my 2018 market forecast will see one of these contradictions severely impact the Dow Jones and other benchmarks. We’ve already had multiple years of strong gains. At some point, the fundamentals have to match the speculation.
Moreover, we’ve been witnessing significant money outflows from the stock market in terms of trading volume. In short, the Dow Jones doesn’t resonate with the current generation like it did for older demographics. With the rise of Bitcoin and other cryptocurrencies, the traditional stock market appears shockingly outdated.
This segues into my other key 2018 market forecast. The beginning of this year was all about $1,000 Bitcoin. Next year, the logical target is $10,000 Bitcoin, a previously unimaginable target but one that is becoming more of a reality as the stock market fades in popularity.