Strategists at Bank of America Corp. (NYSE: BAC) are calling it "The Icarus Trade," a reference to the story of the boy who ignored warnings and flew too close to the sun – and plunged to his death when his feather-and-wax wings melted from the heat.
The Bank of America prognosticators are using this tale from Greek mythology for the post-inauguration prediction that they're making: a parabolic "melt-up" that carries global stock prices up another 10% in a continuation of the "Trump Reflation Rally" – followed by a total market "meltdown" later this year.
A week after Trump's inauguration and the S&P 500 is up more than 1.3%, while the Dow has zoomed well past 20,000 to sit 1.6% higher than it opened on Inauguration Day.
So it seems like the markets are headed toward fulfilling Bank of America's dramatic "Icarus Trade" prediction…
Well, we think it's dead wrong, thanks to a bold call by Stealth Profits Trader Editor D.R. Barton, Jr. And if you caught my interview with him this past Sunday, you'll know exactly why.
You see, his prediction is almost the exact opposite of what the folks at BoA are predicting. Although it's no less dramatic, D.R. believes there's lots more upside in store than what the doomsayers are predicting.
So now that we know how the markets will play out, let's look at the best stocks to buy to capitalize on this…
There's No Bear Out There
If you missed him last weekend, I'll get you caught up on where D.R. stands on which way the markets will go.
He predicted the rally we're enjoying now, but his charts show that stocks will stumble. On that much, at least, we agree with BoA.
But here's the big (and profitable) difference: D.R. doesn't think that stumble will signal a meltdown at all.
In fact, after that temporary pullback, he's predicting stocks will rally anew.
The bottom line: Investors who "buy the pullback" will earn double the profits, or better, of folks who wait for the rebound.
Double the gains of the market – "2× returns" in the vernacular of Wall Street – are the foundation that fortunes are built on.
"Because of the strong move we've seen since the election, I don't anticipate a monster rally from here," D.R. told me during an hour-long Q&A session we conducted a week ago. "But after a pullback, I think our next move will be for more upside – more like a continued melt-up (3% to 7% above the highs) than a rocket launch. [As a matter of course], I hate buying breakouts.
Historically, that's been a low-probability play. I've seen data that new 20-day highs drop 5% before they gain 5% about 60% of the time. For that reason, I really like buying pullbacks on strong stocks, sectors, or indexes."
I've known and worked with D.R. for quite some time and can tell you that he has a pretty great track record when it comes to predictions.
But I'm showing you these totally divergent predictions for a reason: I want to illustrate the uncertainty that hangs over this market, and this economy, like a heavy fog. That fog seems to grow denser by the day, and sometimes by the hour – as political controversy that's been brewing since last week escalates here in the United States, and financial, economic, and political threats intensify overseas.
And yet somehow – and some way – investors like you and I must find a way to navigate this mess.
We want to avoid losses – calamitous big ones and nagging small ones – to be sure.
But we also want to keep making money.
And there's no reason why we can't.
So today, at the end of Trump's first full week in office, here's a plan for doing just that. Consider it an update of our "Trump Era Investing Guide," a way to spotlight the very best stock plays as, depending on whom you ask, Trump settles into – or completely upends – the White House.
Here's Where the Rally's Biggest Profits Will Be
Here then are four investing "mantras" to keep in mind – and the opportunities that accompany them. And know this: While we followed some themes that I'm sure you're hearing lots about, we've also carved out some that are really unique.
The same holds true for our actual investment picks.
Here they are…
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.