The Market Is Predictable… If You Understand the 18.6-Year Cycle
On Tuesday, November 6, 2007, the S&P 500 closed at 1,520 points.
Just one month before, the same index had closed at a record high of 1,565 points.
It would take nearly six years for the market to move past that high point.
That’s because, in between, the markets and the world would suffer one of the biggest financial collapses in living memory.
Who saw that coming?
Not only that, but I published an on-the-record warning. On November 6, 2007 – a full 18 months before the market would hit the Great Recession low.
Here’s how I did it…
The Market Is Extremely Predictable
On that date in November 2007, I wrote to a group of my subscribers at the time:
The market is now beginning to tell us what it is going to do in 2009. At this early stage, a low early March would not surprise, then a 180-day run into early September.
The S&P 500 hit the low on March 9, 2009.
From then, the market ran up strongly into September, continuing on into early 2010.
The reason I was able to predict the exact timing… to the month… for the March 2009 low, is due to the lessons I learned from studying the 18.6-year cycle.
This is very important to understand. If you understand this concept, nothing in the markets, or even the whole economy, will ever surprise you again.
You’ll often hear people say that things happening in the market are “unprecedented.” But that’s not true. If you look back at history, there are always precedents. And not just one-off events, but events that happen in a predictable way.
For instance, since 1955, the Fed has gone through 11 key interest rate cycles. Every single time that happened, house prices went up, not down, in the U.S.
Take one example. Between 1975 and 1979, interest rates went from 7% to 20%. The mortgage rate went from 8% to about 16%. The inflation rate climbed to 15%. Based on data from the Case Shiller Home Price Nominal Index, house prices in the U.S. went up from 27 index points to 43 index points.
Zooming in on those years, that’s an increase of 59%.
Look at other timeframes of rising interest rates, you’ll see the same pattern for house prices.
Not surprising. Because when you’ve got inflation, where’s one of the best places to put your money? Into housing.
History Does, In Fact, Repeat
From what I can see today, I’m not expecting history to do anything different. We might see interest rates drop a little in 2025, similar to what happened in the 1920s. That’s likely when the U.S. will have to rescue the rest of the world… as it usually does.
But not yet. Not now. And not because I say so, but because the 18.6-year cycle tells us that 2025-2026 is when we’ll see the top of this current cycle. Just as we saw it top in 1955, 1973, 1989, and 2007.
Before that we have to go through the last stage of this cycle, which follows the mid-cycle slowdown. (Don’t worry, all these terms I’m using will become clear to you in the weeks ahead. And as the saying goes, once you see it, you won’t be able to un-see it.) The mid-cycle slowdown is when governments have to get into the business of resurrecting capitalism.
That occurred in 2020. The pandemic forced governments to intervene. But what they did was mind-bogglingly stupid. It did nothing but create a whole heap of money… which had to go into asset prices.
That led to inflation, which led to last year’s interest rate increases… and that helped push the economy through to the last stage of the cycle, which will end in 2025-2026. It was the only way that the real estate cycle could complete.
And with unemployment still so low (job vacancies everywhere) this just isn’t the environment for a serious downturn. Not yet. It’s the wrong time in a cycle. Land prices just haven’t gone high enough yet.
But when we get into 2025-2026, that will be a different story. That’s when you’ll see the opening of the world’s tallest, longest, deepest, biggest (or whatever it is) major infrastructure project.
That will be the end of the cycle. That’s when you’ll know the 18.6-year cycle has reached its end.
Remember, this isn’t based on my opinion, or what I think will happen. The evidence is right there in the 18.6-year cycle.
I’ll show you more tomorrow.
Phil Anderson Editor, Cycles Trading with Phil Anderson