Weekly market update
As 2019 drew to a close, we want to look back at what turned out to be a terrific year for the markets. The Dow rose 23%, the S&P climbed an impressive 30%, the NASDAQ rose by 37% and the Russell 2000 was up a mere 24%. But as I say, this is like reading about George Washington and Abraham Lincoln—it’s history.
These were some impressive returns, especially when we began 2019 under a cloud of gloom and doom.
Let’s reflect on where we started. At the beginning of 2019, here are my comments in the first market update for 2019:
I started doing my analysis for this quarterly report completely open-minded, thinking we may have enough evidence to start looking for long trades to make money on rising markets in the first quarter. But that’s just simply not the case. We are not seeing any evidence that this severe downtrend in stocks is over. Not only are we not seeing “the” bottom, I don’t even think we’ve seen “a” bottom.
I really like heavy-heavy cash positions. I still think there is a ton of risk in blindly being long of stocks. I keep seeing reports by analysts talking about buying this weakness.
I’ve been very clear for months that there is a ton of risk out there. I’m not seeing any evidence that things have changed, yet.
My, how things change fast! We had just come out of one of the worst quarters for stocks in years and there was more risk than you could shake a stick at. We were concerned over whether or not slowing growth in China and Europe would spill over to the U.S.—it did not to the extent many thought. We were concerned about the flattening yield curve stoking recessionary fears—they did not pan out. We were concerned about how hawkish the FED had said they would be in 2019 by raising rates 3 or 4 times—they cut rates 3 times. The “No Brexit deal” was high on the wall of worry—it might have slowed down the Eurozone some, but the MSCI EAFE—the developed international markets returns better than 22%—so that didn’t pan out either. High on the wall of worry was the trade war with China—it took forever and a day but I think we finally may have Phase 1 of a trade deal—but the rhetoric over the year was consuming. Finally, we were concerned that corporate profits had peaked and slowing or falling off the table—they didn’t.
Turns out it was all mostly noise. As always, the rear-view mirror is always clearer than the windshield.
We wipe the slate clean as we start 2020 and right out of the gates, many are saying, “look for profit taking on last year’s gains since we won’t have to worry about taxes until 2021. Stocks SOARED right out of the gate, keeping the hopes alive of a positive Santa Claus rally (the last week of December and the first two days of January). Concern about that possibility is what led in prior years to a widely quoted aphorism: “If Santa should fail to call, bears may come to Broad & Wall.” The phrase, as best as I can tell, was originally penned in the early 1970s by Yale Hirsch, author of the Stock Trader’s Almanac.
What will we be watching to kick off the New Year?
- Expectations – The signing of the Phase One trade deal is close with news out of the WH telling us that a “signing ceremony” is due to happen on Jan. 15—we’ll see.
- S. politics – It’s an election year. Get ready or turn off the tube. The markets care about earnings, interest rates and inflation. The only time they care about politics is when it affects one of those three things.
- The FED – Do not expect much from the central bank this year. Rates remain at historic lows, inflation remains subdued, GDP is running at a healthy 2%+ rate, unemployment is at historic lows, wage growth is healthy and improving and talk of Recession is nothing but a distant memory. The idea that 2020 would see at least one more rate cut is now fading, while talk of rate hikes remain “off limits.”
- Earnings – They must deliver to keep this rally going in 2020, and early indications aren’t good. In the last few weeks, 15 companies have reported earnings, all with quarters that end in November, including bellwethers such as FedEx, Oracle, General Mills, Adobe, Micron, AutoZone and Costco. After seeing the guidance, analysts cut first-quarter estimates on 10 of the 15 companies, including significant downward revisions in FedEx, Nike, Micron, General Mills and Carnival.
- Geopolitics – In case you haven’t heard, the U.S. just took out the top Iranian General and they did it in Iraq and Iran has void harsh retaliation. This could be a game-changer folks, but we will only know after the fact, but as of this writing, stocks are trying to put a halt to the Santa Claus rally.
We are very committed to keeping you informed on the markets, the economy and our thoughts and that will not change in 2020, so stay tuned and we’ll keep you posted.
Happy New Year to all!
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
