Year End Recap and Forecast

2017 was a remarkable year from a performance perspective. Stocks led the way with the S&P 500 up 19.4% followed by long-term bonds (EDV) up 13.9%. Gold surprised me when it finished up 13.7% and even crude oil ended up 12.5%

As 2017 ends, the Dow Gold Ratio is very much in a bull trend even with gold’s positive return for the year. The DGR finished up 10% for the year. While 2017 was not a stellar year for the DGR, it nonetheless has a very positive slope.

For 2018, I expect to see more of the same. There are no signs of any kind that the DGR might roll over. Long term bond yields continue to hold for the last six months around the 2.75% range. The downtrend in long term Treasury bond yields began in 1982 and show no sign of changing.

The 10 year-2 year T-Note yield curve is below 95bp which historically is a very sweet spot for stocks. The S&P 500 is up over 8% since the last break down below 95bp back in August 2017. With the curve now at 51bp, we continue to expect positive performance from stocks.

As we stand now, the DGR continues to be positive and warrants full exposure to stocks. For those so inclined, leverage is fully indicated. The triple long ETFs had incredible performance this year.

The Nasdaq 100 (TQQQ) led the pack of the major index ETFs with 113% return and the S&P 500 (UPRO) was up 71%. The Nasdaq 100 continued it’s outperformance versus the S&P 500 now in it’s 17th year. I continue to recommend TQQQ over UPRO. Emerging Markets (EDC) did beat the major US indices with a 138% return.

The big winner this year was the Homebuilders ETF (NAIL) and it returned 268% for the year. Biotech (LABU) came in at 149%.

If I could beat you in the head with a message it would be this: When the DGR rises so do stocks. When the DGR rises you should have the confidence to leverage your positions. When you leverage your positions, you can do very well as shown above. However, picking the right sector is very difficult. It is much easier to pick Nasdaq over S&P though.

The DGR is market timing for long term investors. By design it doesn’t give you quick signals to reverse course. The DGR has only taken you out of the market twice going on 40 years now. But when it is going up, you need to be fully invested.

Recapping my current recommendations: QQQ if you are not into leverage, TQQQ if you are, and NAIL if you want to invest in sectors. I believe the long bond yield will continue to fall very near the 2.75% range so I’m still bullish on long bonds.