Remember this moment well. This is how fortunes are made.
After a long weekend, the Dow Jones Industrials exploded to close at an all-time high yesterday of 26,116. The S&P 500 soared to 2,807. The NASDAQ ballooned to 7,330. The Russell 2000 small cap index was up as high as 1,604 with its sights set on 1,650, we believe.
Even more astounding, the Dow Jones ran from 25,000 to 26,000 in seven trading days.
That’s the fastest 1,000-point rise we’ve ever seen. Since President Trump was elected, the Dow has risen 7,000 points, or 40% thanks to an insane amount of excitement and renewed business and consumer confidence at home and abroad.
"We're just starting to see Corporate America tell us what a lower corporate tax rate means to the bottom line. We shouldn't dismiss that," noted Art Hogan, chief market strategist a B. Riley FBR, as quoted by CNN Money.
In short, 2018 is picking up where 2017 left off thanks to a rollback of overly stringent regulations and tax reform backed by global economic growth, falling U.S. unemployment, and rising consumer confidence, and earnings.
Even better, Goldman Sachs believes the bull market could run another three years.
In its latest market outlook, Goldman forecast a 15% gain in the S&P 500 over that period with a target of 3,100 by the close of 2020. Earnings growth, they noted will be a dominant driver of those gains. It’s also projecting a 14% gain in earnings for 2018 led by strong sales growth, and margin expansion as a result of recent tax reform. Without the tax cut, we may have only seen earnings growth of 9%.
Better still, Goldman also just forecast an 8% jump in capex, a 5% rise in dividends and a 3% increase in buybacks. And it believes we could see net inflows of $400 billion into U.S. stocks with corporate buybacks and ETFs under considerable demand.
In short, even after a 7,000-point move since Trump was elected, the bull market is strong, and it should continue to move up.
With the markets at record highs, you have to protect your profits. You should become familiar with stop losses, which is a price trigger that protects your investment in case of falling stock value.
Some traders use a -25% stop loss for example. If the stock falls 25% from its current price, the stop is triggered, and the stock will be sold. That means, if your stock is selling at $8, you would enter a stop loss at $6. If the price falls to $6, your stock will be sold automatically.
Another profit protecting tool is a trailing stop-loss, which is an order given to a brokerage firm to sell a position once it drops by a certain percentage. In that case, if you enter a trailing stop loss for -25% and your $8 stock rises to $10, the $6 trailing stop loss price would jump to $7.50.
Stop losses and trailing stop losses can only be entered for stocks traded on the NYSE, NYSE American and NASDAQ exchanges, which are what we recommend in The Cheap Investor.