Hey everyone! I hope you all are having a great Holiday season and was able to get away from the markets for a week or so and spend time with family and friends. Now we’re kicking off an entirely new year and new decade and we can see opportunities everywhere! But you must know where to look and to understand the sharks that are lurking underneath the ocean surface.
• As we kick off another year, and another new decade, we bring to a close truly outstanding performance over the past 10 years which is capped by the performance in 2019 of all US Indexes…NASDAQ @ 35.23%; S&P @ 28.86%; Russell @ 25.39%; DOW @ 22.34%…According to some estimates, over $7.5 Trillion in new wealth was created in US Equity markets in 2019 making it the best year in dollar terms since 2013…this in turn will help consumer spending, which is about 70% of the US GDP as well in helping reduce the US Budget deficit as follow-on years typically see more tax generated revenue into US Coffers…
• And of course, everyone wants to know what’s next, what’s up for 2020. As we go into this new year we see the 10 Year Interest rates at a very low 1.78%, an accommodative Fed, Low Inflation and sentiment shift in the US-China Trade wars with a signing up the Phase 1 deal on Jan 15th at the White House…so markets are poised to move higher, but we could see more Volatility in 2020 as we’re greeted with the issues in the Middle East and the US presidential elections.
• The markets are taking on the same similarities as the financial markets in 1999 leading up to the 2000 dot com bubble. We are seeing the Feds inject over $400 Billion in liquidity in the Rep-Markets which is another version of Quantitative Easing (even though they would deny it) and we see that when this amount of liquidity is injected into the market’s momentum stocks take off! Since this new Repo action by the Feds we’ve seen AAPL move up over 38%; -and that is on a stock with over a $1 Trillion valuation, which I find amazing. In fact, if we also include MSFT, looking back over the past decade these 2 stocks attributed to about 8.45% of total S&P 500 Returns and in 2019 they attributed over 14.8% of total returns…But again, you cannot and should not fight the Feds when markets love their sweets…but the downside of all this happiness and party times is the markets also react very negatively when this extra stimulus is withdrawn by the Feds…so in a sense, the Feds could be boxing themselves in a corner…
• One thing that was brought back into the markets this past Friday was Volatility when the US took out a key Iranian military chief…as the day wore on we saw markets regain some of their overnight lows but it does show price action is susceptible to outside unknown events that could stop the momentum train in its tracks…and with Volatility relatively still low hedging further downside risk should be highly considered…
Enjoy this week’s Weekly Round-Up;
Don’t Be A Rat Brain Trader – Be the Red Striped Zebra !!
Trade Smart !