Anticipating a bull market with TradeStation

TradeStation is a Florida-based company offering an ecosystem of trading technology, online brokerage services, and trading education. Founded in 1982, TradeStation was acquired by Monex Group in 2011 for $411M.

To David Russell, VP of Market Intelligence at TradeStation, the economy is in the midst of a systemic—and underreported—shift. Domestic production is once again on the rise, major supply chain bottlenecks have disappeared, and aggregate demand is creeping up, too. These are signs of long-term changes in the economy, Russell argues, as well as an indicator of a yearslong bull market down the pike.

In an interview with The Financial Revolutionist, Russell outlines the indicators and trends behind his thinking, historicizes the variables affecting these shifts in the market, and describes how macroeconomic changes will unlock wealth in the medium term.

This interview has been edited for length and clarity.

The Financial Revolutionist: Are there particular trends or changes over the past year that have stood out to you?

David Russell: I think that most people are woefully unaware of the changing conditions in the economy. A lot of the data has been broadly wrong for many years now, and part of it was because of Covid-19, which massively disrupted sample sets and statistical tools. But I believe that the economy is undergoing a structural change that is not being fully appreciated yet by a lot of economists—and the main thing is that we're seeing a restoration of American work and labor, in part because of the fact that the labor arbitrage of work in places like China is no longer as beneficial as it once was.

We are seeing a 70% to 80% [year-over-year] increase in construction of factories in the United States; we're seeing a tremendous improvement in American production, and we’re seeing a narrowing of the trade gap. What that's going to mean for incomes is significant. We've entered a new kind of era economically, I believe, and that may be what America is going to look like for the next 30 to 40 years; I believe this is going to be a pull in the economy and in the stock market.

Economic models said we’d have a recession by now; in my opinion, the reason we don't have that recession is because we have this extra strength coming from reindustrialization that was not in the models.

We had globalization—and I'm not against globalization—but now, as production comes back, it's restoring aggregate demand to our economy. On top of that, we under-invested in housing coming out of the financial crisis, where we didn't build enough houses for 10 years. So now we have extra demand for houses. Now you have this economy that has massive aggregate demand that people didn't see. That is why, in my opinion, we're at the stage of something kind of like the mid-90s: a significant multi-year secular bull market ahead of us. And it's going to be very interesting to see how as earnings grow, inflation comes down. With more aggregate demand, companies then need to be rebuilding inventories, and that is going to happen in a context where the supply chain bottlenecks have been fixed, so we’ll see production ramp in the next three to six months, and there's not going to be the inflationary dynamic that we had 18 months ago that caused inflation. So we're setting up now for—in my opinion—a smooth and very healthy expansion that's going to be positive for most parts of the economy and the population.

You mentioned a pull in the stock market as a result of these manufacturing shifts. What does that pull entail?

The thing is, when you have the economy suddenly producing jobs and unemployment under 4% and no inflation, the stock market is going to really struggle to go down in that environment. All the models say that that is a good environment. And what it means is if you are a forecaster looking into the future, it's easy to actually see growth. Good profits result in things like few defaults, it produces risk appetite, it produces people willing to make loans and willing to invest in new things. When people are rich, they want to get richer; when people are making money, they're willing to take more risk. So this environment begets more risk taking.

So aggregate demand is increasing due to a range of variables. To what extent this is a Covid-residual effect—the idea that cash disbursements and other macroeconomic interventions led to an increase in consumer demand?

I think that’s over; if anything, it might be a little bit the case now with travel coming back. The under-investment in housing between 2010 and 2020 is more important, in my opinion, because we really did under-invest in houses and we have a shortage of them now. But the good thing about housing is it's almost entirely a domestic industry, so that produces domestic income and domestic profits in the American economy.

If industrial actors are underrecognized in public markets, is there anything TradeStation does—or that you do personally—to account for that bias when delivering market intelligence to clients?

I tell customers about it. Most of these industrial stocks are not actively traded, and our customers are essentially interested in active trading. The way that you understand that is the VIX is going down and we're in a bull market, and thats the way you actually capture these different things that are happening. As the housing market improves, and when interest rates come down, the wealth effect we're going to see will be massive—and we haven’t even seen a refi boom. The amount of wealth that can still be unlocked is just dramatic.

I believe that there's been a massive bubble of fear in this market that is only now starting to melt. We're only now starting to really see people come out of this fear environment, and it really started when the federal government lifted the debt ceiling. We've also had a lot of other volatility beyond Covid— like the snowstorms in Texas in early 2021 that affected supply chains, and the bird flu that affected egg prices, but didn’t nearly get as much attention—and had a big impact on inflation. We've been through dramatic stress, and I think that we're coming out of that now.