After starting December on a sour note, the stock market sure has bounced back nicely! This isn’t surprising, as we remain in the seasonally strong time of year. As we talked about earlier in the month, Bespoke found that December is the “most consistently positive month” for the past 100 years.
So, the $64,000 question: Can the stock market keep rallying into 2020?
In addition to a strong U.S. economy, there are two other reasons why I’m so optimistic right now. Let me share them with you now…
Our Cheerleader in Chief
The first is our “Cheerleader in Chief.” No matter what you think of our current Commander in Chief, President Trump is a big cheerleader for the U.S. economy and, in turn, the stock market. And, on the campaign trail in 2020, you can bet that he will boast that the stock market has soared under his administration.
In fact, in a recent speech before the Economic Club of New York, President Trump noted that the S&P 500, Dow and NASDAQ are up 45%, 50% and 60%, respectively, since his election. Of course, he also took the moment to add that if the Federal Reserve had cut key interest rates sooner, “another 25%” could have been added to each of those numbers.
Personally, I expect that President Trump will continue to talk up the U.S. economy and the stock market heading into the 2020 presidential election. It will be a perpetual promotion campaign that will likely kick off with his State of the Union address in January.
I should add that the stock market historically likes presidential election years, as candidates run around and promise everything and anything. This optimism tends to boost consumer confidence. Typically, the most energized candidate with the biggest crowds is often named the next president.
Now, I’m not predicting President Trump’s re-election yet. But any Democratic opponent will be hard-pressed to match President Trump’s economic enthusiasm and energy.
Dividends Keep Rising
My second reason is the consistent increase in dividends. Investors are pouring back into the stock market to buy high dividend stocks. As you may know, the Dow is loaded with reliable dividend stocks, including Apple (AAPL), The Boeing Company (BA), Microsoft (MSFT), Intel (INTC), Verizon (VZ), Walmart (WMT) and The Walt Disney Company (DIS). All have boosted their dividends in the past couple of years, and more dividends hikes are anticipated in 2020.
In addition, the Dow currently has a 2.23% dividend yield, which is nicely higher than the 10-year Treasury yield of 1.83%. In theory, if the Dow would rise 55%, then its dividend yield would finally match the 10-year Treasury yield. And, if dividends continue to steadily rise in the Dow as anticipated, a 70% increase in the upcoming years is very possible.
Yield-hungry investors are still chasing quality dividend stocks and benefiting from a favorable 23.8% maximum federal tax rate on qualified dividends, which will support higher stock prices in the New Year.
Now, here’s my $64,000 question for you: Is your portfolio ready for a tremendous 2020?
You see, a rising tide does tend to lift all boats, but when it turns out that some of those boats are leaking, they’re bound to capsize eventually.
I don’t want that to happen to any investor, which is why I, along with my friend and InvestorPlace colleague Matt McCall, created the Power Portfolio 2020. I believe this portfolio is an unsinkable ship, as it holds 9 stocks that Matt and I found created for smooth sailing throughout all of next year.