Should You Hop on to the Stock Investor’s Optimism Train?

The Dow Jones Industrial Average remains within kissing distance to an all-time high of 19,878.44 the morning of December 29, 2016 –– fabulously close to the 20,000 mark, but no cigar just yet. Is this performance the result of the legendary Santa Claus rally in stocks? Or is this simply an expression of investor optimism – the glorious anticipation of a Trump economy ostensibly committed to an ambitious infrastructure spending plan?
Stay tuned. We’ll most likely have at least a partial answer in a couple of weeks.

Fair warning. The last time investors were this bullish, the stock market plummeted 56%. History shows that when public opinion reaches a consensus, it’s almost always off base. Investors invariably hop on to the optimism train too late. This is because they react to a market surge instead of making an effort to understand its true nature and time span.
According to the Wells Fargo/Gallup Investor and Retirement Optimism index, investor sentiment reached a nine-year high a month ago. That indicator registered 96, and marked the third consecutive quarterly rise, up from 79 in the third quarter.
The index is comprised of seven components. Most of its improvement was based on the outlook for the economy at large. Almost 57% of respondents were optimistic about the U.S. economy, up from 45% in the third quarter. Only 27% were pessimistic, down from 35% when the previous survey was taken.
Obviously, there’s a good chance that the Dow Jones Industrial Average will reach, and even bypass, the 20,000 mark by the end of the year. There’s good reason to believe the index will correct substantially early next year.
The caution of one particular group of leaders, business executives, suggests why that could easily happen. According to Edge and Edge Pro newsletter analyst Anthony Mirhaydari, spending on new equipment has declined at a rate not seen since the Great Recession. This metric will ultimately have a dramatic impact on new orders, profit margins, and revenue. This is the kind of hard data runaway investor optimism almost never takes into account.
It’s also the kind of hard data about economic trends that could do serious damage to your portfolio if it’s not hedged or protected properly. Traditionally, the best kind of hedge and protection is gold. In times like this when the Dow Jones Industrial Average appears to be riding for a fall, the inverse correlation between gold and the U.S. dollar and dollar-denominated investments kicks in. You’d be wise to sell at least some paper assets at this point and to use your gains to pick up some gold at an attractive price that could surge much higher very soon.
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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