Hey Folks, lots of records being set in this crazy financial environment but not the kind we like; –worst week performance since 2008 and worst December going all the way back to 1931 US Great Depression is not what everyone was expecting for the year-end rally! But now that we’re here, what next? Get my take below;
Market Sound Bites:
• Holiday Reminder – Monday Equity Markets in US will close at 1 PM ET and for the full day on Tuesday, Christmas day…Most all other major Country markets will also be closed on Tuesday as well…entering the month of December the S&P, DOW and NASDAQ were in the Green YTD…Now, for the month so the S&P is down 13.4%, the DOW is down 12% and NASDAQ is down 15.4%…we are on pace to have the worst December going all the way back to 1931…on a bright note this large Q4 pullback (about 17% in the S&P) has increased US Corp Stock buybacks and looking into 2019 the forecast is for more of the same; $1 Trillion + in buy backs…
• Folks, we know I have been pounding the table that the years of easy money and credit leads to very large expansion of asset valuations…this was not just a US phenomenon but globally, Central banks were all in concert in injecting a lot of liquidity into the financial markets…and now, Central Banks begin to “undue” or reduce their bloated Balance Sheets we will see less market liquidity and in doing so company valuations will come back down more in alignment with longer term averages…we are going thru that process at this time…now cash is sitting on top of the mountain…the average dividend yield for the S&P is 2.31% and as of this past Friday’s close the 13 Week T Bill interest rate was sitting at 2.42%! (no risk to own so money flows there vs to Equities)
• Santa’s year-end rally got mauled by a Bear…US Stocks lost about $2.05 trillion in market value this past week as the selling intensified after a FED Policy Statement and Misstep by Powell in my opinion…Hiking the rates by 25 bps to 2.25% – 2.5% was built into the market but when he seemed oblivious to Global market forces, US slowdown and his Balance Sheet reduction (QT) running on “Auto Pilot” at $50 Billion monthly set the markets on fire for more downside action…This past week also saw a widening in the Credit Markets with the spread between Junk & High Yields widening…
• Most analysts don’t forecast a recession in 2019 but most all agree in a slowdown in US Economic Growth but there are a few wild cards that could either tip the Global Growth story off the rails or provide more lift; China Trade Tariffs are the biggest issues that could impact Corp earnings/margins and capex spending plans…so there is a higher degree of risk in these forecasts at the moment and hence this adds to the headline risk of good or bad news…the other big issue facing the markets in 2019 is the impact of the BREIXT negotiations. This will clearly impact the U.K. but all of Europe as well since each are their respective biggest trading partners…again, another known unknown outcome adds to the head line risk and large market price fluctuations based on perceived outcomes.
• Keep in mind that most institutional analysts for 2018 got most of their stock rating calls wrong; –for example of the 100 least popular stocks at the beginning of 2018 had just 17% of analysts covering them with a buy rating finishing the year up on average 3.6%…and those top 100 stocks that had over a 77% buy rating finished the year on average down about 3.6%…herd mentality and contrarian views work as well with Rat Brain Traders as they do with professional analysts…
Weekly Market Round-Up Update:
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