Why Stock-Market Success Is Usually Only Temporary

Here's a sample of record sentiment readings for stocks

By Elliott Wave International

Recession coming or not, people are still EXTREMELY bullish.

Read this excerpt from the May 17, 2024 Elliott Wave Theorist:

Record Sentiment Readings for Stocks

Investors are enamored with stocks that pay little or nothing in the way of dividends. The extent of that bias has now reached an all-time extreme. The chart below shows the history of investors' preferences for low vs. high-dividend stocks, on a 20-year return basis. ... Here in 2024, the preference for low-payout stocks over high-payout stocks just established a new record.

On May 15, Goldman Sachs published a chart showing record equity allocation among a broad spectrum of investors.

[And,] on May 4 and 14, respectively, the Financial Times of London showed that retail investors' gorging on equity ETFs leveraged by two to three times has approached the 2021 extreme, while the total flow of retail money into the stock market has exceeded that of 2021.

[Finally,] here is the title of an opinion piece, published by Bloomberg on May 9:

It's Dangerous to Stay Out of Stocks
Research from Barclays provides fresh evidence that you should almost always have
some money in equities

No one expressed this attitude in 1974, 1988 or early 2009. Today it is gospel.

The consensus is always to be in cash at major bottoms and fully invested at tops. The reason for this inevitability is that pessimism makes market bottoms, and optimism makes tops. In both environments, few can see the inevitable turn. Success among the crowd is always temporary.

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This article was syndicated by Elliott Wave International and was originally published under the headline Why Stock-Market Success Is Usually Only Temporary. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold Prices: The calm before a record run

By Elliott Wave International

The basis for analysis and forecasting at Elliott Wave International is fundamentally different from everyone else’s.

Here's a prime example in gold.

This excerpt is from the March Elliott Wave Financial Forecast, when gold was trading below $2,050/oz.

Gold’s three-month implied volatility has declined to its lowest level in over four years. While low volatility is not a short term timing tool, low volatility eventually precedes high volatility. At the same time, total open interest in gold futures has declined to its lowest level since December 2018, as traders are either closing futures contracts or abstaining from opening new ones. The low level of open interest means that investors’ attention is turning away from gold, and the low implied volatility indicates that investors do not expect gold to move much over the course of the next three months. Both are preludes to what we see as a major move forming in gold prices.

Gold rallied to $2,500/oz in five months following our forecast.

Has the rally stalled or is there more to go?

There are two ways you can benefit from our precious metals coverage now. See your subscription options.

Not ready to subscribe? Read our must-read Highlights Issue on gold and silver for free now..

This article was syndicated by Elliott Wave International and was originally published under the headline Gold Prices: The calm before a record run. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

This Trend Will Likely Soon Rock the U.S. Financial System

Why monetary inflation has been shrinking

By Elliott Wave International

Nearly everyone who buys groceries, fills their car tank with gas, pays rent, buys car insurance and so on is talking about the high cost of living. And it’s true that consumer price inflation is higher today than before the pandemic – although, it’s nowhere near as high as it was two years ago, when the annual inflation rate spiked to a 40-year peak of 9.1%.

Since then, the pace of inflation has slowed way down. In fact, the latest reading of the Consumer Price Index, or CPI, came in at 3%, close to the Federal Reserve’s “ideal” target of 2% a year.

But that’s price inflation. There is another measure of inflation that has to do with money supply. It’s the so-called monetary inflation, or the supply of printed money. It has also declined over the past two years and is likely set to decrease even more. And while it sounds like a good trend, it’s actually the opposite.

Here’s insight from our just-published July Elliott Wave Theorist:

Monetary inflation … is unlikely to continue. Why? because since early 2022 the Fed’s clear aim has been to reduce the size of its balance sheet. Over the past two years, the value of the Fed’s assets, representing “printed” money, has gone from $8.94 trillion to $7.22 trillion, a decline of nearly 20 percent.

The July Elliott Wave Theorist continues:

This shrinkage of base money, moreover, has taken place even as total debt has expanded. This situation cannot maintain. The dichotomy will soon rock the financial system. It’s just a matter of when.

Indeed, U.S. household debt – which is part of that “total debt” The Theorist is referring to -- grew by $800 million from 2022 to 2023, including a 16.6% growth in credit card debt, according to Marketwatch.

The financial website had this headline on June 20:

Americans Are Carrying Record Household Debt into 2024

Interestingly, Washington D.C. has the highest per capita credit card debt in the country.

And speaking of the nation’s capital, out of control spending has led to a national debt of nearly $35 trillion.

As CBS News noted earlier this year (March 1):

U.S. interest payments on its debt are set to exceed defense spending.

The Congressional Budget Office projects the annual interest on the debt will hit $1.4 trillion by 2033.

And this does not even consider the huge amount of debt at the state and local levels – as well as the debt of corporations.

U.S. household debt is growing and will only get bigger. In turn, so will the scale of the news coverage about "the importance of the household debt to economic activity." Regardless of where in the world you live or invest, staying ahead of the trends in the U.S. stock market and economy is worth your while. Elliott Wave International has a free must-read issue on U.S stocks that I suggest you check out, on www.elliottwave.com.

This article was syndicated by Elliott Wave International and was originally published under the headline This Trend Will Likely Soon Rock the U.S. Financial System. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.