Stocks Are About to Do the UNTHINKABLE.

[00:00:00] Speaker 1: Something very unusual is happening in financial markets right now. This chart shows us the U.S. stock market alongside what's called the U.S. Economic Policy Uncertainty Index. Now, since late 2024, these two lines have generally been moving closely to one another. Periods where uncertainty was rising, as seen by this line falling, the stock market was declining. And moments when uncertainty was falling, the stock market was moving higher. Makes sense. But more recently, we've started seeing a significant divergence building between these two lines. Despite U.S. economic uncertainty sitting at one of the highest levels in the past 40 years of data, the stock market has, against all odds, still managed to continue rising and making record highs. At a first glance, it seems like investors have simply stopped taking into account this elevated level of uncertainty. That they are completely disregarding the economic and geopolitical risks that are present in today's macroeconomic environment. But this really could not be further from the truth. Because despite the rise in the stock market, the U.S. Treasury bond market has actually fallen by 15% since late 2024, wiping out around $300 billion in market value. At the same time, the U.S. dollar index has also declined by 10% over the same time period. And just the last month alone, $50 billion have left U.S. money market funds, marking the biggest outflow in over a decade. The truth is that we are actually seeing a massive exodus of capital out of U.S. assets as a result of the elevated levels of uncertainty we have today. But if that's the case, then why is the stock market not falling right now? Well, we believe a key part of the answer lies on this chart right here that shows us the purchasing power of the U.S. dollar. Now, the dollar has been consistently losing purchasing power throughout the last 35 years. There's nothing new about that. We can see the long-term downtrend for the U.S. dollar's purchasing power has been, for the most part, pretty steady. But what's significant is that this decline has actually begun to accelerate beyond this historical trend. The dollar has been losing purchasing power at a more rapid pace than at any other moment in the last 35 years of data. This really began right at the moment when inflation in the U.S. started surging aggressively in 2021. And while the media has reported that inflation has cooled back down in recent years, the reality is that inflation remains well above the average of what we've seen in the last 35 years. What this means is that the dollar has been losing value at a much faster rate than usual during this period. And when that happens, assets like the S&P 500, which are measured in U.S. dollars, can continue rising even when the underlying value of those assets has not really changed much. Put simply, a weaker dollar makes everything that is priced in U.S. dollars look more expensive, and that includes stocks. So investors see a nominally rising market and conclude that everything's fine, but what they're really seeing is their wealth being measured in a currency that is itself losing value faster than usual. So in many ways, this healthy-looking stock market is actually an illusion created by an acceleration of the dollar's devaluation. One simple way to look at this is by looking at whether U.S. corporations are actually growing if you remove the help from the U.S. dollar's devaluation. And when we do that, it looks something like this. Periods where this line is rising are moments where corporate profits are rising even after factoring the debasement of the U.S. dollar. Generally, corporate profits have grown over time, even after adjusting for inflation, but more recently, we can see that they have been stagnating. Since 2021, corporate profits have basically been completely flat after removing the declining purchasing power of the U.S. dollar that we discussed earlier. On the flip side, the U.S. stock market has, as we know, been posting record nominal gains during this very period. So this gap between the two shows what's really happening, that a great deal of the U.S. stock market's performance has been driven by other factors than any real appreciation in the profits of the underlying companies. A good chunk of this can be explained by the fact that the U.S. dollar has lost value. So now that we can accurately see what's actually happening on the U.S. stock market, the only question that's left is how wide we should expect this gap to get or if we should expect the stock market to suddenly snap back down to reality. This is precisely what happened in 2001. The stock market had diverged so far away from what corporate profits were actually doing that eventually gravity pulled the S&P 500 index back down to reality. Given that the gap that we are seeing right now is being in large part driven by the devaluation of the U.S. dollar, that's the first thing that we can look at. Today, inflation has started to tick back up again. It's risen from 2.4% to 4.2% since the beginning of 2026. And if we look at the U.S. dollar's purchasing power, we can see that it's once again begun to accelerate to the downside. Now, we won't get into that in this video, but we also have strong reasons to believe that this will continue to accelerate downwards. So, the primary reason for why this gap exists between corporate profits and the stock market actually seems to be accelerating right now. So, on its own, this is very likely to continue acting as a tailwind for the stock market that is priced in U.S. dollars, allowing it to continue rising. But there is a big caveat to this. The stock market can only continue to rise if corporate profits remain stable as they have in recent years. If, all of a sudden, they begin to contract, that's a whole other story. That almost never ends well for the stock market's performance. When the economy contracts during economic recessions, it doesn't matter how strong inflation is or how much the dollar is losing purchasing power, it will drag down the profits of the stock market and cause the S&P 500 index to decline. Now, right now, if we simply look at real GDP growth in the U.S., it is still very much positive. It is hovering steadily in the 2% to 4% range, which actually historically coincides with periods of economic stability where corporate profits tend to be resilient and allows the stock market to keep moving higher. We can even see that GDP growth has recently begun to turn back up in the last quarter. That is not something that we typically see heading into any prior economic recessions. So, not only is the U.S. dollar losing purchasing power at a record pace, which is allowing the stock market to defy gravity despite ongoing geopolitical and economic risks, but corporate profits are also likely to remain resilient in the coming months despite higher levels of inflation. That is really a perfect storm for a stock market melt-up. Now, if that actually plays out, we'll be riding it along with our clients with our quantitative model that is specifically designed to stay leveraged long on the stock market as it is moving higher while flipping to cash when the risk of volatility rises. In the last five years, the model has delivered a 468% return. That is eight times more than the S&P 500 index in the same period of time. These are real-world returns that were made with real capital. We just released this model out to the public, and for a very short time, we're doing a special launch offer where you can get access to it at a fraction of the price that it will cost later on. You can click on the link below if you're interested. Thank you for watching.