We're at the End of the 'Dr. Doom' Era

Believe it or not, signs of economic slowing were once viewed as bad news for stocks. [Chaikin PowerFeed]( We're at the End of the 'Dr. Doom' Era By Marc Gerstein, director of research, Chaikin Analytics Believe it or not, signs of economic slowing were once viewed as bad news for stocks. But "Dr. Doom" changed that with one legendary prediction on August 17, 1982... You see, former Salomon Brothers Chief Economist Henry Kaufman – known by the nickname "Dr. Doom" – had previously projected that deficit spending and a strong economy would push already-high interest rates in the U.S. even higher. But then, on August 17, 1982, he reversed course... That day, Kaufman forecasted that rates would instead fall due to "financial blockages and tough economic competition." Dr. Doom's reversal turned the financial markets upside down... 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A bad economy meant less demand for money, and less demand for money meant folks needed to pay less to borrow it (i.e., lower interest rates). In response to Dr. Doom's reversal, the S&P 500 Index jumped 4.8% on August 17, 1982. That was the benchmark index's biggest one-day percentage gain in decades. And despite some small bumps along the way, the S&P 500 has experienced an incredible ride higher for nearly 40 years since Dr. Doom's prediction. Take a look... [S&P500 Graphic] Importantly, this hasn't just been a bull market... It has been a bull market driven primarily by lower interest rates. The following chart shows exactly what I mean. It's the interest rate (or "yield") on the 10-year U.S. Treasury note since August 17, 1982... [10-Year US Treasury Yield] As you can see, the 10-year yield has trended lower since the 1980s. That caused bond prices, which move inversely to yields, to rise over that span. Don't look at these charts for perfect trends, though. Just keep the big picture in mind... Expectations of lower interest rates powered a bull market of nearly 40 years. But we're in a sticky situation today... Interest rates are near zero. And as a result, the post-1982 experience won't repeat. It can't. That means we're now at another major reversal in the financial markets... Going forward, equity investors will need to say goodbye to the Dr. Doom era and live with interest rates that stay flat (the best-case scenario) or rise. It's a brand-new ballgame. But that doesn't mean stocks are dead. It just means bulls must think differently... In this new ballgame, profits will have to drive stocks upward instead of falling rates. Stated mathematically, it's about the price-to-earnings (P/E) ratio multiplied by earnings. You see, lower interest rates cause P/E ratios to rise. So the Dr. Doom era depended on falling interest rates to push P/E ratios and stock prices higher. In other words, during the Dr. Doom era, you could get things wrong in your analysis of a company. The market – "Uncle Fed" – was often happy to cover up your mistakes. Now, the new ballgame will be about rising earnings. Here's what it means for your decision-making process... Earnings are based primarily on company-specific factors. Moving forward, the Fed won't be there to bail you out if you make mistakes. We're now in what's called a "stock picker's market." Don't let that phrase intimidate you. It's what most individual investors usually try to do... The end of the Dr. Doom era means we're better positioned to succeed as individuals without feeling stomped on by institutions riding the waves of lower rates and the resulting P/E expansion. And as we head into 2022, you can approach this new ballgame with in-depth security analysis. Or you can simply do what I do... Trust the "Power Gauge" to do the grunt work. Good investing, Marc Gerstein Editor's note: Our proprietary "Power Gauge" system can help you analyze thousands of stocks at any time with just a few clicks of your mouse... Even better, it can guide you to the best places to put your money to work in the days, weeks, and months ahead. Chaikin Analytics founder Marc Chaikin recently put together a special presentation in which he walks through how to use the Power Gauge – and also makes the biggest prediction of his five-decade career. You'll get a free recommendation just for tuning in. [Learn more here](. Market View Major Indexes % Hld: Bullish Neutral Bearish Dow 30 +0.30% 8 18 4 S&P 500 -0.06% 140 288 70 Nasdaq -0.46% 39 50 12 Small Caps -0.58% 369 1018 468 Bonds -0.40% — According to the Chaikin Power Bar, Large Cap stocks are more Bullish than Small Cap stocks. Major indexes are mixed. * * * * Top Movers Gainers [rating] CPB +2.80% [rating] BLL +2.59% [rating] AAL +2.04% [rating] VLO +1.87% [rating] ATVI +1.86% Losers [rating] DXCM -7.09% [rating] ETSY -3.46% [rating] PENN -2.89% [rating] MPWR -2.55% [rating] TER -2.34% * * * * Earnings Report Reporting Today Rating Before Open After Close No earnings reporting today. Earnings Surprises No significant Earnings Surprises in the Russell 3000. * * * * Sector Tracker Sector movement over the last 5 days Discretionary +4.29% Materials +3.94% Information Technology +3.52% Real Estate +3.19% Industrials +3.06% Energy +2.82% Staples +2.51% Health Care +2.38% Financial +2.08% Communication +2.07% Utilities +1.81% * * * * Industry Focus Health Care Equipment Services 11 49 24 Over the past 6 months, the Health Care Equipment subsector (XHE) has underperformed the S&P 500 by -20.57%. Its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #16 of 21 subsectors and has moved down 1 slot over the past week. Indicative Stocks [rating] TMDX TransMedics Group, I [rating] NVCR NovoCure Limited [rating] SDC SmileDirectClub, Inc * * * * Chaikin Analytics LLC is not registered as a securities broker-dealer or advisor either with the U.S. Securities and Exchange Commission or with any state securities regulatory authority. Chaikin Analytics does not recommend the purchase of any stock or advise on the suitability of any trade. The information presented is generic in nature and is not to be construed as an endorsement, recommendation, advice or any offer or solicitation to buy or sell securities or any kind, but solely as information requiring further research as to suitability, accuracy and appropriateness. Users bear sole responsibility for their own stock research and decisions. Read the full disclaimer at [(. 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