Ever since the Treasury yield curve inverted a few weeks ago, everyone has been talking about a recession. Historically speaking, an inverted yield curve is a definite harbinger of a recession. And now it seems like everyone is bracing for a huge downturn in the US economy.
German Bank (comics) calls for a recession by the end of 2023, as does hedge fund manager Leon Cooperman. And so does “Bond King” Jeffrey Gundlach. Indeed, according to a survey of the the wall street journal28% of economists expect a recession in the next year.
So is it time to sell it all and run for the hills? No.
With everyone fearing an impending recession, my team and I have identified a single market phenomenon in ten years are emerging right now. And that only shows up when people worry about a recession.
By capitalizing on it today, you can’t just survive a 2023 recession. You can thrive and earn generational sums of money.
So what is this phenomenon about? How will this help you thrive during a recession? Let’s find out.
Stock prices follow fundamentals
To understand what my team and I have identified, we first need to understand stock behaviors.
In the short term, stocks are influenced by a myriad of factors. Geopolitics, interest rates, inflation, elections, fears of recession, etc.
Over the long term, however, stocks are only driven by one thing: fundamentals.
Ultimately, revenue and earnings determine stock prices. If these tend to increase over time, a company’s stock price will follow and rise. Conversely, if they tend to fall over time, the stock price will fall.
This may seem like an oversimplification. But honestly, it’s not.
Just look at the following table. It graphically represents S&P500 earnings per share (blue line) next to its price (orange line) from 1988 to 2022.
As you can see, the blue line (earnings per share) lines up almost perfectly with the orange line (price). The two couldn’t be more strongly correlated. Indeed, the mathematical correlation between them is 0.93. It’s incredibly strong. A perfect correlation is 1. A perfect anti-correlation is -1.
Therefore, the historical correlation between earnings and stock prices is about as perfectly correlated as possible.
In other words, you can forget about the Fed. You can forget inflation. Forget geopolitics, trade wars, recessions, depressions and financial crises.
We have seen all of this over the past 35 years. And through it all, the correlation between earnings and stock prices has never broken or even weakened.
At the end of the day, profits push up stock prices. History is clear on this. In fact, mathematically speaking, history is as clear on this as on anything.
And the phenomenon that my team and I have identified is related to this correlation. In fact, it is centered on a “break” in this correlation – which only occurs when recession fears peak. And it produced the biggest stock market buying opportunities in history.
Large Divergences Create Large Recession Opportunities
About once a decade, a rare anomaly appears in the market where profits and revenue temporarily stop driving stock prices.
We call this anomaly a “divergence.”
During divergences, companies tend to see their revenue and profits continue to increase. Yet their stock prices are temporarily collapsing due to macroeconomic fears. As a result, a company’s stock price deviates from its fundamental growth trend.
Each time these rare divergences appear, they become generational buying opportunities, where stock prices boomerang to their fundamental growth trends.
Let’s look at some examples.
This phenomenon appeared in 1989, in the wake of the savings and credit crisis. Investors assumed that much of the US financial system was on the verge of collapse. Everyone was worried about a recession. IT actions that change the world like Microsoft (MSFT) and Intel (INTC) collapsed by 30% or more in a matter of months.
But while fears have sent the prices of these stocks plummeting, these companies have seen their revenues increase by more than 10% during the same period. This created a divergence. Stock prices were down and earnings were up.
Both stocks then rebounded over 70% over the next year and jumped over 500% over the next five years.
Huge gains – some would even call them generational.
Making money during the Dot-Com crash
Fast forward to 2000. During the Dot-Com crash, another divergence window appeared. Again, everyone was worried about a recession. These fears caused the collapse of Internet stocks, the e-commerce giant Amazon (AMZN) tanking 94% in the early 2000s.
But over the same period, the company’s revenue has increased by 145%. In the end, this divergence ended in Amazon shares rise 185% over next year. And that grew 433% over the next five years.
Are you starting to see a pattern? Well, this phenomenon reappeared in 2008, during the Great Financial Crisis.
In the middle of it, Selling power (RCMP) the stock fell 70% while its earnings rose 20%. What happened the following year? Salesforce stock rebounded, rising 185%. Over the next five years, the stock gained a breathtaking 861%.
You get the point. Divergences between stock prices and fundamentals create exceptional and rare buying opportunities. Investors can triple their money in one year and achieve nearly 10x returns in five years.
The funny thing about history is that it tends to repeat itself.
And right now my team and I are watching another big divergence emerging today within a specific group of actions. Buying them today could be like buying Microsoft in the late 1980s, Amazon in the early 2000s, or Salesforce in 2008.
We’re talking about generational buying opportunities.
The Final Word on Recession Preparedness
You don’t need to follow the markets closely to know that there are a lot of macroeconomic fears today.
There is a war in Europe. Inflation has been at multi-decade highs. The US Federal Reserve is aggressively tightening monetary policy. The yield curve has inverted. Gasoline prices are at record highs and recession fears are rife.
There’s a lot of anxiety out there, just like there was in 1989, 2000 and 2008. And just like back then, all that fear is creating a divergence.
Across the market, companies are seeing their stock prices fall sharply while their revenues continue to grow.
The previous divergences have created excellent (even life-changing) buying opportunities. This one will be no different. In fact, according to our analysis, the divergence we see today is the largest yet. This means that the upside potential over the next 12 months is greater than anything we have ever seen.
So while everyone is worried about a recession, we will capitalize on the biggest market phenomenon of the decade. And we will survive and thrive if a recession comes our way.
We are still conducting all our research regarding the current divergence. Specifically, we are working around the clock to identify the best stocks to buy for gains of several hundred percent in the current divergence window.
But this research is exclusive. So if you’re hoping to get your hands on it when it’s ready, you’ll need to join our top reviews.
Interested? You should be. We’ll keep you posted on how to capitalize on the investment opportunity of a lifetime.
As of the date of publication, Luke Lango had (neither directly nor indirectly) any position in the securities mentioned in this article.