Hey Folks, as we round off the first month of 2019 we saw records breaking everywhere and mostly to the upside! Remember the old adage, “So goes January, so goes the Year” did not work well in 2018 as we saw markets open up with a flourish only to falter big time in the fourth quarter. So where does that leave us for this year? I would say in one word; –stretched! It does not mean we cannot stretch even more but at some point, even a Gummy Bear will snap!
Market Sound bites:
• This January turned out to be the best start for the S&P since 1987 with a 7.95 gain; but it followed the month of Dec that saw a plunge of 9.18% which was the worst Dec performance since 1931…helping boost prices to the upside was a reversal in commentary from the US Feds, from discussing future rate hikes to backing off to a “wait and see” type approach and going off the “auto pilot” comments regarding Quantitative Tightening…from the Dec 26th lows to end of January we’ve seen stocks move up over 15.9% representing about $4 Trillion in market value…But the saying “As January goes, so goes the rest of the year” did not work last year with markets seeing declines for the full year after a strong January 2018 start…and headwinds sill persist in this market so now it not the time to be complacent.
• Keep in mind the S&P 500 has delivered a blistering avg annual returns of 12% since 2008, which is almost double its normal run rate so we can expect over the next several years for these returns to abate somewhat…the Feds expect 2019 growth to come in around 2.3% which is reduced from their estimates made last year for 2019 growth of 3%…and with the forward PEs sitting around 16 valuations are not stretched with interest rates still with the 10 Yr US Treasury sitting around 2.7% so we clearly have the back drop for higher price action…
• From the White House we are getting encouraging news on the progress of US – China Trade talks and it is my belief Trump will get this deal done…the markets seem to be factoring in a more favorable result and the sentiment to kick off 2019 is more positive vs negative…even with slowing Corp Growth we are seeing price action in the US being solid; but headwinds could come from slowing Growth in China or across the pond in Europe.
• We also have that issue facing the Feds of QT (Quantitative Tightening)…how much more can they draw down the US Balance Sheets without upsetting market liquidity which can force interest rates higher and equity prices lower…thus far the Feds are not offering much guidance; merely a comment regarding “wait and see”….This can be a very big cloud hanging over the US Markets along with the dramatic increase in Corp. Debt…in their meeting this past week they left rates unchanged and also introduced more Dovish approach to monetary policies stating “patient and flexible” but we should not confuse these words with “done”…
My Take on Market Action:
Don’t Be A Rat Brain Trader —
Be the Red Striped Zebra and Trade Smart !!