“Oh, those Carson guys are just permabulls.” Institutional CIO who has been dead wrong for years
Are we permabulls? We get this question sometimes and it is a great question. (A permabull is someone who remains bullish on markets no matter what is happening.)
On the surface we know that stocks usually go up, so maybe we should always lean bullishly? When it comes to my investments and retirement accounts, I do take this approach. I don’t care what the headlines are, I’m still going to put money into my 401k every two weeks. Then we look at a chart like this and it makes you think it might pay to have a glass half full approach to life.
It is no secret that the Carson Investment Research team took the road less travelled two years ago and went on record that a new bull market was starting and there wouldn’t be a recession. This call was absolutely hated by so many. I’ll never understand why, but most were hoping for a recession and bear market and for us to be one of the very few places to go against the herd of institutional investors (who all think the same) wasn’t well received.
We were mocked on social media, laughed at in public forums for saying 2023 was going to be a good year, shunned from going on TV for being ‘reckless’, and more. Here’s the thing. Yes, in bull markets with the current backdrop we are bulls. When we start to see signs of technical deterioration, stress in the credit markets, and signs the economy is indeed breaking down, we will change our tune. We’ve been overweight equities since December 2022 and we remain there today.
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So no, we aren’t permabulls. But we are completely dedicated to helping clients reach their financial goals, even if that means going against what’s fashionable. And we definitely were not running around for two years telling people to be overweight bonds relative to stocks like so many of the big institutional shops have been.
Why do we remain bullish here and now? For starters, this bull market is actually quite young, at just over two years old. As you can see here, the average bull market lasts more than five years, suggesting this bull market might indeed last a lot longer than the bearish CIO would think.
Did you hear we had an election recently? Yeah, you probably heard, but what you might not have heard was that years one and two of a president who was re-elected tend to do quite well and better than under a new president. In fact, the four years under President Biden played out quite well to script. Year one does well, then year two (the midterm year) is weak, followed by a strong final two years. No, we don’t say you should invest simply on the presidential cycle, but we sure wouldn’t ignore it either.
What drives long-term stock gains? It is earnings and when you have an economy that continues to surprise to the upside, you tend to have solid earnings. For more of our thoughts on why the economy continues to look pretty good, be sure to read what Sonu Varghese, VP Global Macro Strategist, wrote in The Economic Outlook Looks Pretty Good – Part 1 and Part 2.
Turning to forward 12-month S&P 500 earnings we once again see new highs, all the way up to $268, up from $225 in early 2023. There is no holy grail when it comes to investing, but when we saw earnings estimates making hew highs, we took it as a big reason to be overweight equities and still do.
It doesn’t stop there though, as profit margins continue to trend higher and are at their highest levels this cycle. Profit margins expanding and earnings hitting all-time highs are great dual tailwinds for higher stock prices.
The S&P 500 is looking at potential back-to-back years with a gain of over 20% for the first time since the late 1990s, so we need to be aware it’ll likely be tough to see that impressive feat for a third year in a row. Then again, here’s a tweet I did on consecutive 20% years. If investors have 99 problems, up 20% two years in a row shouldn’t be one of them.
We continue to think low double-digit returns next year is possible (so better than your average year), but one thing to be aware of is the third year of a new bull market tends to be a catch-your-breath year. This makes sense, as years one and two of a new bull market are very strong, so some consolidation would be perfectly normal. The good news is once a bull market gets to year four, the returns once again are very strong.
When I started at Carson back in July 2022, I wanted to be part of one of the most honest and trustworthy research shops out there. We won’t always be right, but we sure won’t always be wrong is how I like to say it. The calls that our team has made the past few years have been about as good as anyone else out there. We are honored to help so many of our Partners grow and to shed some light on what it really happening, without following the crowd and saying the same thing as everyone else.
No we aren’t ‘just permabulls’ around here and trust me, we will change our tune when the data tells us to. Where am I a true permabull? I’m a permabull in believing that if you treat people the right way, work hard, stay humble, and surround yourself with good people that good things will happen.
For more content by Ryan Detrick, Chief Market Strategist click here.
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