Happy Labor Day, traders.
Jeff here.
Unless you’ve been living under a rock, you’ve probably noticed that risk assets have been soaring across the board in 2024.
The SPDR S&P 500 ETF Trust (NYSEARCA: SPY) is up 3% in 30 days, 10% in 6 months, and 18% year-to-date.
To put this in perspective: stocks historically gain around 10% per year.
So, I’ve been thinking a lot about the current state of the stock market over the long weekend.
I’m on a mission to figure out exactly what’s causing this “everything rally.”
If we can determine why the market is surging, we can potentially predict how far the rally can go (and how to trade accordingly).
If you think the answer is simply “AI” … you’re missing the big picture.
Of course, the speculative mania around AI has been a huge factor in how overextended the market has become.
But it’s not the sole contributor to this mania-driven market bubble.
I think there’s a more important factor pushing this rally along — one that 99% of traders are overlooking right now.
And now, I’m going to reveal it to you…
The Real Cause of the “Everything Bubble”
As I’ve been trying to determine what’s causing this speculative bubble, I think the answer lies in real estate…
Owning a home is the backbone of the American dream.
For generations, families have relied on real estate as a rock-solid asset to invest in and a way to begin growing their capital.
But a few years ago, something happened that changed this possibility for a lot of Americans.
When inflation ran rampant in 2022, the Fed raised rates seven times — the highest number of Fed rate hikes in a single year since 2005.
This caused a huge increase in the minimum down payment for a single-family home:
30-year fixed mortgage rates surged from a reasonable 2.96% in 2021 to a whopping 7.7% in 2023.
A couple (or individual) who could’ve afforded a downpayment at 2021 rates were suddenly priced out of the real estate market entirely in 2023.
But now that’s changing…
Fed Chair Jerome Powell has said it’s time for rate cuts, mortgage costs are starting to come down, currently sitting at an average of 6.35%.
However, inflation and low supply continue to drive home prices higher.
Bottom Line: For younger Americans without six figures in income or savings — it’s nearly impossible to buy a house in 2024.
So, if they can’t buy a house … where are these Millennial and Generation Z investors going to park their money?
You guessed it — in speculative risk assets like tech stocks and crypto.
Why This Matters for Traders
And that’s why I think we’re seeing the current “everything rally.” It’s a very real problem about where investors can place their money.
Additionally, an entire generation of Americans has been conditioned to think this super gambly, speculative, mania-driven trading environment is normal.
Meanwhile, companies like Blackrock are buying up the available homes in the real estate market, keeping prices high and supply low.
The past few years have not been normal in the stock market. But that’s incredibly hard to grasp if you’ve only been trading since 2020 … because this market is all you know.
People always say “This time is different…” — but it never is. When crazy rallies happen, traders think, “This time, the rally won’t end, at least not yet, and not when I’m trading…”
But they’re wrong.
Avoid this mindset at all costs. Realize how unusual this market is and do your best to avoid getting brainwashed by it.
For months now, I’ve predicted that rate cuts could lead to trouble for stocks…
And now that it’s actually happening and mortgage rates are lower, I think we could see money come out of stocks as it flows into real estate assets.
This is coinciding with the well-known “September Effect” — when stocks generally do worse in September than any other month of the year.
Coincidence? Probably not…
So, be cautious as you trade through this Fall season, particularly as we get closer to the September Fed meeting.
Happy trading,
Jeff Zananiri
P.S. There’s a hidden trading opportunity right now that 99.9% of the market is sleeping on…
Hedge funds are mispricing trades daily, creating “artificially cheap” opportunities.
Spot these glitches and you could see returns of 51%, 107%, and even 630% within 24 hours…*
*Past performance does not indicate future results
