Secret recession indicator points to massive stock market rally
People are talking about the US economy falling into recession. But believe it or not, it could have been in one. And strangely enough, That might be the best reason to buy stocks today.
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Technically, a recession is defined as consecutive quarters of negative GDP growth. GDP in the first quarter was negative. Sure, it is negative due to the weird trade imbalance. But it still went silent.
The Atlanta Fed’s real-time GDPNow model forecasts second-quarter GDP to shrink 1.2%. That would mark two consecutive quarters of negative GDP growth for the US economy. If true, then technically, the US economy entered a recession in January.
Ghostly indeed. But for investors, that perception really scream chance.
Wall Street is at the point in this sell-off cycle where, historically, a recession has been priced in. Usually, what happens next is a major stock rally in which the entire market tends to go up 15 to 25%.
So forget all the recession talk. That would scare off ordinary investors. Indeed, the average investor is running away from the market. But smart investors – those who sold back in December 2021 – are now returning to the market. And they are gearing up for a big bounce.
Briefly, Time to buy dips.
Here is a closer look.
Popular Recession Buy Indicator
One of the best kept secrets of the financial world is a largely unknown opposing market indicator called “Buy Recession Indicator.”
The Recession Buy Indicator was developed by the famous economist Norman Fosback in the 1970s. The general theory is that the best time to buy stocks during a recession-induced sell-off is around 7 months. . It was around that time that people started to realize the economy was in trouble and could have been in a recession.
The thinking is that because the stock market is a discounting mechanism, stocks fall well before the recession becomes apparent. And they recovered well before the economic recovery became apparent. According to Fosback’s research, this “inflection point” tends to occur around the second half of a recession. That’s usually around the seventh month because the average recession lasts about 14 months.
Theory is not just talk. It is backed by 150 years of data.
Since 1870, stocks have generated ~2x returns every time the Buy Recession Indicator is activated – seven months after the economy entered a recession.
Average profit in three months? Over 4%, compared to 2% for a three-month term. Average profit for six months? Around 6%, compared to ~3% for all time periods. Average profit for 12 months? Around 15%, compared to ~8% for all time periods.
Time to buy now
The proof is clear. The Buy Recession indicator works. Typically, you want to buy stocks after seven months of recession, once the world starts to think the economy is actually in recession.
And according to the data, that’s exactly where we are today.
It looks like the US economy entered a recession in January. It is now July – July. Meanwhile, over the past few weeks, every major financial media outlet has been writing about how the US economy could shrink.
The Buy Recession indicator is flashing right now.
Historically, that means we’re in the middle Great buying opportunity. And the stock will go significantly higher over the next 12 months.
It’s a price increase.
But it is not the only bullish indicator flashing right now.
Analyst price target implies 25% profit -Plus
While stocks have tumbled over the past eight months, Wall Street analysts remain staunchly upbeat.
In other words, the stock price has fallen a lot in 2022. But the stock price target is not down much. Result? A huge gap between the stock price and the price target, indicating a huge upside potential for the stock.
This is a rare occurrence especially price increase.
Specifically, analyst consensus price targets for various stock market indices – S&P 500, Dow Jones, Nasdaqand Russell 2000 – are all 20% above the current index level. Such a large spread has only occurred four times since 2000. Three out of four times, the stock rallied in the next 12 months. Average gain? An impressive 25%!
In other words, analysts are rarely as bullish on stocks as they are right now. Where they have rallied this before, the stock is up 25% on average over the next 12 months.
Together with the Recession Buy Indicator, this data forms a “Buy now” dissertation.
Inventories have been squashed this year. As a result, a lot of investors are running away from the market to avoid losses. But there is growing evidence for the worst of the market sell-off. And a major market rally is approaching.
So don’t run away from the market. Run towards them. Buy stocks that are positioned to lead to a major rally in the second half of the year.
One such stock is a small, $3 tech stock that I think might be The most attractive 12-month investment opportunity on the market today.
The world’s largest company – Apple (AAPL) – is supposed to announce a brand new product in the coming months.
No. I’m not talking about another iPhone, Apple Watch or iPad. I’m talking about a brand new product that could be bigger than all of them put together.
And according to my analysis, the company behind this $3 tech stock is positioned to secure a partnership with Apple. It will provide a key piece of technology to make this new product work.
Quick market tip: Apple supplier stock isn’t trading for $3. Just look at Skyworks (SWKS) share. It’s a major supplier of iPhone components. Its shares are trading for $100. But at one point, it was also trading for $3.
The tiny potential Apple supplier stock I’m talking about could easily trade for $100 in the near future. And today it’s just $3.
This is a stock you simply must hear about right now.
Fortunately, it also a stock i want to tell you all about.
Originally published on InvestorPlace. Read Here.
Image credits inside: Provided by the author; Thank you!