Five years ago, the Dow was struggling to overtake a new all-time high around 18,000 and calls were growing that US stocks may be putting in a major peak. At the time, during the summer of 2016, we got an update from one of our regular guests, the well-known and controversial forecaster Martin Armstrong, on our Financial Sense Newshour podcast, to get his thoughts on whether stocks might be at a peak, who would win the 2016 Presidential election in four months, and all the other hot topics being debated at the time.
In addition to correctly predicting that Trump would win, which of course was a very contrarian call at the time, Martin also said that US stocks were nowhere near a peak and would likely reach as high as 40,000 on the Dow in the years ahead, more than double where they were trading then.
Since 2021 witnessed the Dow make another push to record highs well over 30,000 (getting us closer to Martin's Dow 40,000 forecast years back), we caught up with Martin again to get an update on his outlook. Here's what he had to say in a recent interview on FS Insider (see Martin Armstrong on 2022 Panic Cycle, Commodity Bull Market for audio).
Capital Shift Underway
Most of what drives Armstrong's view on the US stock market or others is global capital flows—that is, where is investment capital flowing and why? For years, Armstrong has argued that as bonds reach lower and lower yields, this increasingly forces capital into the stock market as retirees, pension funds, and major institutions across the globe can no longer earn a decent yield from the bond market.
This is one of the main drivers behind the rise and fall of markets over long periods of time and, he argues, behaves according to a cyclical rhythm of 8.6 years, as illustrated by his now famous Economic Confidence Model, which also pointed towards a major market bottom and potential crash in the beginning of 2020.
In our recent interview, Armstrong reiterated that capital is continuing to shift away from government-issued debt and move into the private sector, whether that be in the form of corporate bonds or corporate equities (stocks).
One area in particular where he has tracked a tremendous amount of money moving has been out of Europe and into China, simply because of negative yields on government debt in Europe and more attractive opportunities in the world's most populous country.
Is Dow 40,000 Still on Track?
In the short-term, Armstrong said his minimum target for the Dow is around 37,000. Looking further out—around the 2030 time frame—Armstrong has a price target of 65,000 on the Dow.
However, it is important to understand that fundamental economic conditions are changing substantially, he said.
We’ve experienced this Great Reset that has not only devastated the world economy, but also disrupted capital flows on a tectonic scale.
Lockdowns have disrupted the supply chain of so many things, including everything from food to computer chips. This has been very disruptive, Armstrong noted, and the only way to make forecasts with any accuracy is to understand how things operate from a global perspective.
Understanding why equities are set up for this move higher requires understanding why public debt is likely to collapse, Armstrong said, and how that is going to influence many heading into equities.
2022 Panic Cycle
These forces are likely to have major repercussions in the political space, as well, Armstrong said. His models predict what he believes will be a 'panic cycle' developing in 2022 with the potential emergence of a third party or some other political event.
Last year, his model showed that we could see splits in both the Democratic and Republican parties. While the Democrats are highly splintered, with several exclusive interest groups, the Republicans essentially exist within two camps.
One is the traditional conservative wing of the party, and the other is made up of anti-establishment thinkers, Armstrong noted.
“What we've been showing—and now the polls are basically verifying what our computer model is forecasting—is that 70 percent of Republicans said they would leave the Republican party and follow Trump,” Armstrong said. “It may be Trump, and it may not. What we’re talking about is really the anti-establishment part of the party. They're calling it Trumpism, but it's not. Trump just happened to be the guy that stepped up at the right time. … In 2022, our computers are projecting this panic cycle in politics.”
Armstrong offered substantially more insights into coming trends, so be sure to subscribe to listen to the rest of his thoughts in our two-part interview. If you're not already a subscriber to our FS Insider podcast where we interview book authors, strategists and industry experts from across the globe 3 days/week on all things economics, finance and markets...
Written by Ethan D. Mizer