Writing about what might happen in the market’s future isn’t without risk. Nobody gives you a magical crystal ball when you become a strategist.

But here’s the thing. There are signals—based on empirical data—that, when interpreted properly, give investors a useable roadmap to what the future will likely hold for stocks, for example. We’re all about the data.

I’m going to give you five of them here which together point to a gain of about 12% over the next six months for equities. I believe investors should be more aggressive buyers right now and here’s why, followed by some 15 “asset light” stock ideas.

The S&P 500 index fell a breathtaking 7% in the 4 days following the July 31 FOMC meeting and the plunge in the US 10-year note yield to below 1.70%. Indeed, it triggered a global market sell-off (panic?). For more on this, see page 6.

As they always do after such big moves down, the doom prophets emerged from their bear caves, some pointing to 2019 as approaching its own “Lehman moment.” The plunge in US bond rates is certainly not welcome (sign of disinflation, and even credibility issues for Fed); the 10-yr was 1.32% in 2016 after the surprise Brexit vote, so this is not ‘new ground.’

However, investors ignore at their own peril the following five bullish signs that were generated in the past week. These signals have dependably generated an average gain of 12% in the following six months, 3.3 times above the 3.6% average gain over 90 years seen in the rolling average of any six months.

Data Says S&P 500 Index Set Up for A Monster 2H19 Rally
Source: FS Insight, Bloomberg

Here’s why I’m bullish:

1. Fed made its first rate cut in July, and since 1971 such a move, when leading indicators are positive, as they are now, resulted in an average 14.4% gain; (See chart.)

2. The VIX term structure (1 month-4 months) inverted. The last five of seven times was the bottom, followed by a mean six months gain of 8.9%;

3. A 3% one-day drop is sign of panic. Since 2009, there followed a mean 15.3% gain in the next six months;

4. The daily relative strength index (RSI) fell below 30. Six of the last six instances saw the market gain sharply, with average six months gain of 11.1%;

5. The American Association of Individual Investors (AAII) measure of the percentage of bulls less bears is about -26. Since 1987, when it has been that negative, the market followed up with a mean 9.3% gain in the next six months.

So maybe this is our crystal ball.

Data Says S&P 500 Index Set Up for A Monster 2H19 Rally
Source: FS Insight, Bloomberg

We are not ignoring the negative signal of a plunge in interest rates, nor saying that a full-blown trade war is negative for the world. But we believe the trifecta of strong US corporates; a positive White House (towards business) and a dovish Fed are major supports for U.S. equities. Moreover, whether investors are convinced of it or not, 2019 is tracking 2009 closely (something I’ve been saying since the start of this year). My view remains that 2009 is the best analog for 2019 and that equities are seeing their best year since before 2006.

The larger question remains: why does the Street seem to view every 5% pullback as the start of Armageddon? This old bull market has endured multiple 5%-10% drawdowns and managed new highs—yet, investors seem to believe this expansion’s structure is built on straw (though, actually, it makes sense if one sees this as purely central bank driven).

What could go wrong? There are so many things that could go wrong. Deflation. A badly managed Brexit. Trump and China go to threat level 10. The Democrats surge in the polls. Russia interferes in the next election. North Korea. Deutsche Bank. Too many.

Bottom line: I believe that investors need to stick with the four winning strategies I have pointed out: (i) US over RoW; (ii) “asset light” over “asset heavy”; (iii) Large-cap over small, (iv) and cyclicals. The following 15 stocks tickers represent the top decile of “asset light” + Doctor Quant Model ranked 1, and 11 underweights which are “asset heavy” and DQM ranked 5.

OW tickers are: ROK, VRSN, LRCX, MXIM, QCOM, XLNX, MSFT, CL, MNST, MO, PM, AMGN, BIIB, GILD, BMY

UW tickers are: WAB, CRM, WDC, ICE, CB, L, STI, HCP, WELL, NI, AP

Data Says S&P 500 Index Set Up for A Monster 2H19 Rally
Figure: Comparative matrix of risk/reward drivers in 2019
Per FS insight
Data Says S&P 500 Index Set Up for A Monster 2H19 Rally
Figure: FS Insight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019

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