Transcription
Hi gang, Larry Williams back here with, I guess, our annual thing with stockcharts.com. Weren't we lucky to have them support this with my look at 2026? You know, we did this a year ago looking at 2025, and now it's time to look at what's going to happen this coming year. So, let's get right to it.
The big stock of the year has been Nvidia. Here's my forecast out for the first few months of 2026. It looks like we're going to see Nvidia come down into the middle of February, and then we start a good rally up into April. In fact, on the longer-term basis, which is the blue line, that's the wave of the longer-term cycle. Nvidia has rallied about 75% of the time generally when this wave has been there, and this time frame coming up from, uh, mid-February into May. So, you Nvidia followers, there's a forecast you can get on to right here and right now.
Well, let's look at the past a little bit. The following six slides are really interesting. You're going to see a lot of this in the coming couple of weeks. These slides are from 2023. Got it. A long time ago. Oh, tough times. 90% crash has begun. 2023, 90% crash, only 10% people, ser absolutely dead wrong. Tough times, the worst recession a century. Jim Rogers, absolutely wrong. Tough times, Ray Dalio, everyone's going to be wiped out. We weren't wiped out. [clears throat] Tough times, 361 days ago, we're on the brink of a zombie apocalypse in the United States. At 25 days, that was now three years ago. Go. It didn't happen. The sky is falling. You're going to hear so much of this negative news. Don't listen to it. And you'll see why in a moment. Even the president of FedEx warned worldwide recession a year ago. Well, we didn't have a worldwide recession, but the worst is this guy, Jim Rickers. Oh my gosh, it's coming. The 2022 recession. We did not have a recession in '22, '23, '24, '25. The professional bears, the purveyors of pessimism, you have to be really careful of, because at this time of the year, they come out of their cave with all the gloom and doom. Now, there's a time to be bearish, and there is a time coming up. I'll talk about that a little bit later, but for right here and right now, don't listen to these guys. I'm going to get you right back to reality.
Well, there's a huge thing in the stock market: PE ratios. This is a chart of PE ratios. If PE ratios are 10 to 15, this is the annual return in stocks. So, low PE ratio, 10 to 15. We've had 15, 20% gains in the stock market. That's really big. When PEs get out here, PE isn't 30. Well, we're below this. We're actually have negative returns. This is the driving force of the stock market. Pay attention to this, not the Cassandra. So, where are we now? We'll see in a moment. We're generally in this area over here. So, we can expect moderate gains in the market, 5, 8, 10%. We're not in this area in the danger area. We're actually about 22 as of today. You'll see that in just a second. In this area, which is positive for stocks. In fact, here it is. A year ago, the PE ratio was 27.2. Well, it's better now. It's 25.0. And the estimate of this coming year is 23. Well, 23 puts us like over in here. So, this is a fundamental fact of the market that trumps so much of the mumbo jumbo about stock prices. We are not excessively cheap in terms of stock, but we're not overpriced. Overpriced would be if we're in this area, as you saw, we're in this area right here, a positive for the stock market.
A lot of people talked about the yield curve. Now, stockcharts.com has got a great stock on that. I'm going to share that with you in a moment. But here's the big takeaway of the yield curve. Until it gets above one, we don't receive recessions, and we're not there now. So, you can follow this on the St. Louis Federal Reserve, uh, chart page, but we're not even close to getting to the danger point of the yield curve. Not only that, this is really great. This is stockchart.com. Uh, you can get this chart for free on the internet. Here is the yield curve at this point in time, just before, uh, the crash that we saw. And look what the yield curve was doing. It was coming down. That's a negative for the stock market. Then before the 2008 stock market, bare market, the yield curve was coming down. Stocks went down. Then before the big crash, we saw, not crash but pull back in 2022. The yield was flat to down. And here's where we are now. The yield curve is up. That's positive. This shape of a yield curve is bullish for stock prices. So, we're looking at some fundamental reasons here, the yield curve, a lot of other good fundamental data, the PE ratios, but there's some bad stuff out there. Well, maybe bad stuff. I think inflation is going to come and pick up. And we talked about three years ago about inflation will start to come down based on my cyclical studies of inflation. And inflation came down. Now, though, as you can see my cycle inflation in red. Yeah, you got it. You can see the picture just like me. We're going to start to see inflation pick up. Now, is that good or is that bad? Well, it's good to a point and very bad after a point. We just have to see where that's going to go. I'll have more about that in my 2026 annual forecast report.
But jobs also matter. Jobs are huge in terms of a fundamental aspect of the market. And so I'm going to take a look at jobs as the population ratio, the number of people, uh, as a percentage of the population. Now, most analysts look at just, uh, the number of jobs, how many people are employed or unemployed. I think that's wrong. You have to look at that number in relationship to how many people are looking for jobs, not just the raw number. And the raw number started to do some interesting things here. Um, so message from the rocket man, break over now. Get back to work, right? Aren't you glad you're not in North Korea? We can actually do a cycle study of that employment ratio you saw earlier. This is the cycle in blue and gray of the employment ratio. This is when jobs pick up. I've overlaid this with the Dow Jones Industrial Average in red. So, you can see when this cycle picks up, stocks usually have been pretty strong. We're going all the way back to 1970 here. That wave again came in 1982 and a big up move in the stock market. So, it looks like there's a correlation, maybe causation, when people are working, stocks go higher. We see in 1993, that same wave in the cycle picked up, stocks picked up. 2004, wave picked up, stocks picked up. So, there's a fundamental driving force. When people are at work, we see bull markets. 2015, bullish market. And this is where we are right now. This wave of, uh, employment, people getting jobs, going back to work, start to pick up from about the middle of 2026 into 2028. I think that's bullish for stock prices.
I'd also like to step in for just a moment. Thank Chip Anderson, the entire gang at stockcharts.com. Without these people, I wouldn't be here. You wouldn't have seen all the things I've done this year. They do it for free of charge. It's just an amazing service. They provide us with Chip and the whole gang there. Wow. My hats off to you. Thank you very much. And I hope all of you will thank them equally.
Hey guys, it's Grayson here. I hope you're enjoying this video from the legendary Larry Williams. Now, we are so honored to have Larry's content here on Stock Charts TV, but we're even more honored to have him as a power stock charts user. Larry has been using the tools, the features, the charts, everything that we have at stockcharts.com for years, and he recommends that you do the same. So remember, if you want to trade and invest and analyze the markets the same way that Larry himself does, you got to be a stock charts member. Visit stockcharts.com. Look for that big green button at the top of the page. You can get started with a free one-month trial. Level up your trading and investing toolkit with the same tools chosen by the legendary Larry Williams. Now, let's get back to the video.
I have been so fascinated by Edgar Lawrence Smith. Uh, Smith was the driving force behind Warren Buffett. Smith wanted to prove that stocks outperform bonds only in inflationary time periods. He did a lot of work on this in the 1930s, and his research showed stocks outperform bonds over time. Prior to that, people were big investing in bonds and not in stocks. And Warren Buffett read his paper and said, "Ah, that's it." And Buffett took a huge direction based on that. Uh, Buffett's application was retained earnings drive compounding. So, Berkshire invests in firms that reinvest profits. In other words, they're growing companies. He looked for companies with strong reinvestment discipline. That's one of the keys that a lot of people haven't really picked up on Warren Buffett. They look at ratios instead of, are these people reinvesting in the company? Are they, are they growing the company? And that's been one reason why he's been so successful. But was based on, in fact, Buffett said about Edgar Lawrence Smith, he was a very smart man. He figured out when stocks are better than bonds. So, Edgar Lawrence Smith did some really interesting stuff. In addition to fundamental ratios, he looked at cycles way back in the 1930s. He said the most dominant cycle in stock prices was about three and a half years. H, and it had been up to that time. So, what you're seeing now is this cycle of about three and a half years, but from 1930 forward. So, we're doing out of sample here. And there was a cycle low, you see, in 1995, an Edgar Lawrence Smith low. Another one, 1998, another one, 2002, a little early, but not a bad time. 2005, another one right there. Oh my gosh, those Edgar Lawrence Smith cycle lows out of sample have been pretty good buy points. We're going to bring them up to date here. There's a 2005, 2008, 2012, 2016. Hm. Edgar Lawrence Smith was really on to something. This guy was as brilliant as Warren Buffett says he is was. 2019, 2023. You know, we got very bullish back here. Uh, my panic indicator gave a buy signal here. We've been long ever since, bullish ever since. And look what's happening again in 2026. The Edgar Lawrence Smith sets up another buying opportunity in the market. So, don't listen to the Cassandra. They're going to be out there preaching doom and gloom. Don't listen to them. We have another phase coming up in that powerful stock market cycle.
Now, a lot of people are saying, "Well, we had such a strong year in 2025. The market's got to come down." Well, maybe, but we have 85% odds of 2026 not declining. Here are all the up years we've seen, uh, going back to 1806. And, uh, those are the up years versus unchanged years and down years. So, we've got high odds. These are all years ending in six, right? So, 2016, all these years ending six. The majority of them, uh, 85% of them closed higher. Four of them didn't have any gain one way or the other. So, really, we had even more than that that didn't get damaged. And only four times did we see down years in years ending in six. That sixth part of the decennial pattern, uh, has been significant in the marketplace. Uh, people all said, well, we've been three up, three years in a row. Well, does that really mean anything, or is it just numbers? Probably just numbers. 11 times we were up three years in a row, and eight times the next year was also up. So, again, we see a strong probability that the trend will continue. In fact, look, we had one string in nine years, consecutive years up. So, don't be too concerned. And you're going to hear this a lot now. Trust me. People, oh, we've, we've been up strong three years. We have to have a pullback. We have to have a pullback when fundamentals are there. When the PE ratio is real high, when there are fundamental issues, when we don't have jobs, when people are not getting employed, when we have high inflation. Those are the things that drive markets up and down.
What happened to artificial intelligence this year? I ran a study on the Dow Jones stock to see which ones in the Dow have been the strongest for the year. Look at Caterpillar. It's up 64%. Goldman Sachs, Johnson & Johnson, Nvidia, it's up 30%. So, you don't have to put all your focus on the hot stocks of the day. There were some great value buys in Caterpillar, Johnson, IBM. Oh my gosh. So, the point is, don't lose focus. It's a big market, and don't get so focused you're only in one specific little minutia group of stocks.
Well, you know, life is full of cycles, and I'm going to talk a little bit more about those cycles. Now, we have carbon cycle, water cycle, cycles in every place, especially in stock market data and in money. This is an interesting chart. Look at this. Of course, the red is a Dow Jones Industrial Average. The blue is the cycle of money expansion M2 in the United States of America. In other words, money supply. And there seems to be a strong money supply about every six, seven years, we see a low in money supply, and then we see money supply pick up. And does that correlate with stock market bull markets? Well, it sure did. Back up to 1980. This goes all the way back to 1960, right? So, when a lot of money comes into the market, stocks move higher. I'm bringing that up to date. Here's that same cycle in money. 2022, 2005, 2009, 2012. Right there. You're probably wondering where are we now. Well, let's take a look. Ex coming up from 2012, 2016, 2019, 2023 was the last time was back here. That was over here. Nice time to buy stocks. And in 2026, that low or next upswing in money supply and increase in monetary growth in the United States comes into play. Is it a guarantee we'll rally? Does it mean we rally straight up? No. But it does mean the bias is to the long side of the market because money does matter.
How about the crowd? You know, everybody's been really bullish recently. So, what, what is the crowd? Can we use investment sentiment here? I have a great sentiment buy signal coming up for you. So, grab your pencils. You're going to love this one. Here it goes. You ready? This is a University of Michigan sentiment survey that's in black. It goes roughly from about 50% down here to everybody's bullish up here at 100%. But look at it. Here's the Dow Jones underneath it. As the sentiment goes up, when the stock market goes up, stock market goes up, sentiment goes up, market comes down, sentiment goes down. Market goes up, sentiment goes up. Market comes down, sentiment goes down. I kind of think the University of Michigan, [clears throat] oh, I know they have enough problems with their football teams, but they might have some problems with the data. Here it is again. Markets up, markets up. Markets down, sentiment goes down. Market rally, stocks rally. Markets come down, sentiment goes down. It's, I think a University of Michigan sentiment survey is nothing more than a reflection of people following the Dow Jones Industrial Average. But there is a big blue buy signal using that data. Let me show you. Here's an S&P index. You see, goes from very bearish. This is 55% bullish to 100% bullish. But when it drops below 60%, look where we are in stock markets in red. Buy signal. Buy signal going all the way back to 1973. The Michigan sentiment survey dropping below 60 there did in 2008, bullish. 2011, really bullish, great place to buy stocks. Uh, 2022, it dipped below 60. Another nice place to buy stocks. The low we saw this year, it dipped below 60. It's currently below 60 as well. So, if you're looking for a pretty good long-term buy signal when the University of Michigan survey drops below 60, you better start acquiring stocks. 2026 coming up.
Can we know the future? Is it really, really possible to know the future? I think so. A lot of ways we can look at that. Some I've already shown you. One is there's a business tendency survey for the United States that shows when people are getting very bullish about their businesses or very negative about their businesses. And of course, you know me, I'm going to put that into cycles. That tends to be about another seven, eight year cycle. The black line is the indicator itself, and the cycles are the blue line, and that blue line plays out in the stock market. When we've been in a big expansionary phase going back to 1982 in their surveys, these people, businessmen, not consumers, but businessmen turning bullish, we've seen bullish rises in the stock market. We saw 2006 up into the peak in 2007, 2011 bullishness, 2015 bullishness. 2015, we saw 2020 following COVID, and 2025 was the last time the cycle was in phase, and stocks rallied. So, currently, that cycle starts to come down, though, later in 2026. So, there are some potential problems coming ahead, but between now and maybe later that year, we've seen some fundamental cycles that have strong influence on stock prices, and they're bullish.
Uh, I've got a lot of emails about this. My forecast 2026 report will be ready January 1st. If you want to get a copy of it, go to ieltrade.com. Write that down. Don't forget it. ieltrade.com. And you'll get an email when we're, when the forecast is done. I've been deep, deep into it getting it ready. Uh, we'll have, uh, 60 of the most active stocks, all, all the actively traded future markets and major markets, the world, inflation, interest, and when the next, uh, recession is going to come. This is our 2025 forecast report. We thought we saw an 84% probability of 2025 rallying. Pretty much what we got, isn't it? So, can you see this future? I think we got a pretty good view of it. Our forecast report in 2025 said, any way you look at it, cycles are bullish for 2025, and they've remained that way. This is our forecast for 2023. Or natural cycle in blue, and this, the black was not known when we made the forecast, but you can see the market pretty well followed the forecast. 2024, that was the cycle forecast. Again, we got the bull market, the cycle forecasted. 2025 forecast will come down at the first of the year and then rally. So, I think we can get a pretty good glimpse of what's going to go on in the future. 2025, we said expect a bull market. Oh, yeah. Lower housing prices. That really happened. Housing prices declined. But I was calling for a recession. We didn't get one. We said also, no way, inflation, a bounce, but no change in direction. Employment, no serious decline. Those things all happened. It's kind of interesting. You know, I read all the reports from JP Morgan and Chase and Goldman Sachs and like there's a bunch of words, but what I found is more important is these relationships, the fundamental causes of things. And there is a recession coming. Uh, I'm 100% certain of that. The question, of course, is when and why. And I'm going to dive into that in my 2026 forecast. There are some really good recession indicators out there that give warnings in advance, and using those cycles, we have a pretty good idea when the next recession is coming. So, if you're interested in that, that you want to get the report.
Here's the shock of the year. The Donald Trump. This is amazing. This, oh, wait. See what I'm going to show next. This is federal government tax receipts of corporate income. So, tax receipts were from 2000 for 2020 like up, down, up, down. Look at, woo. Look what happened to tax receipts. They skyrocketed. We have never seen this much of an increase in tax receipts. Now, what causes tax receipts? People actively making money, profitable business to pay taxes. Remember with the Enron scandal a few years ago? Well, the, the giveaway that it was a scam was they weren't paying any taxes. They weren't making any real money. So, to see a huge increase in tax increases mean there's money coming into the treasury, which can do two things: one, offset debt, and B, pay for other social programs or, or building programs in one form or another. Here's the really interesting chart. This is the tariff shock. Look at that. We've gone up as much in, again, tax receipts on customs duties. We've gone up as much in the last year as we've seen since 1960. Almost double the amount of money has come in because of those tariffs. So, yeah, I know you can argue tariffs all day long, and I've talked about that in my presentation stock charts. Uh, they might increase prices, but one thing absolutely for certain that we can't argue with: they have increased money to the treasury. So, that is a really bullish consideration. As long as those tariffs can be maintained, it's a whole new world in terms of, of tax receipts. Now, what, who knows what president's going to do? I certainly don't know what he does. I think he wakes up in the morning, decides what he's going to do. But this is something we really have to consider, this massive increase in the tax receipts and how that affects the economy, and one reason I think why markets have been so strong this year.
So, what to expect in 2026? Can we get this down in a nutshell? I'm going to try. I think stocks will move higher. Interest rates will decline. Inflation will increase. Uh, so if you want specifics on it and the individual patterns, we'll go to my 2026 forecast report. Here's an example like here's Bank of America. Can this chart really help you? What's Bank of America going to do? This is where cycles can help. Watch the next chart. Your view of 2026 where this stock is like this, or well, I don't know what it's going to do, or this. Here's my short-term cycle. There was a short-term low back here when coming up late January up to a peak in March. Comes down. Another, the red line is intermediate-term cycles. The longer cycles are in blue. Starting in August, we have about a 65% chance of seeing Bank of America rally. It should start to get particularly strong about the first week of October when the red short intermediate term is in phase with the long term. So, what this is, what cycle forecasts can do. They can give you the future of what to expect in the future. That's why in the forecast report, we've got every future, every stock market index, and 60 of the big-time stocks. So, you can get a handle today on what's going to happen in the future. This is where cycles versus anything else in technical analysis gives a view of what probably is going to happen. So, go to iittytrade.com. Write that down. Don't forget it. And January 1st, we'll let you know when it's available.
So, until then, I want to be wishing all of you a happy and prosperous new year, a Merry Christmas, and again, my heartfelt thanks to the people at stockcharts.com because without them, I wouldn't be here. If you like today's presentation, post a note, say you do. If you don't like it, well, also write down why you don't like it. Uh, I certainly don't expect everybody's going to agree with me on everything. That's the way the world is. So, until next year, uh, 2026, this is Larry Williams, as always, wishing you good luck and good trading.