As mentioned in our December e-mail, Santa did not bring a rally this past Christmas. It was all “coal” for investors who endured the worst December since 1931 and the worst year since 2008.1 Many investors would have “thrown in the towel” by Christmas Eve with the S&P 500 down 20.2%, the NASDAQ down 23.9%, the S&P 600 Small-Cap down 27.8%, and West Texas Crude Oil down 44.9%2 from their peaks. However, as you can see from your enclosed performance, your patience has already begun to be rewarded.
Investors can throw their Christmas wish lists in the fire and start fresh. All we want for New Year’s is well…more than our two front teeth.
1. An end to the “trade war.”
<2% Inflation in hopes that the Fed will not raise rates too quickly. The Fed has said it will be “data dependent.” As long as inflation remains contained, we may get some relief from rising interest rates. In one more quarter, this Fed tightening cycle (2016-2019) will be the longest and slowest ever recorded.4
3,000 on the S&P 500 – An all-time high is not as far-fetched as you may think. Were the S&P to reach 3,000, it would be selling at only 17.5X earnings, which we do not think is unreasonable. Below is a chart of the DOW Jones Average since Christmas Eve.
Chart Source: Raymond James – Joey Madere
4 Quarters of Positive GDP – Right now, our economists estimate 2019 U.S. GDP growth will be greater than 2.4%.4
5 FAANG Stocks in the “Green” – So far, four out of five are well within positive territory.
6% Plus Chinese Growth – Chinese economic growth would benefit the entire world. There is much anticipation leading up to the March deadline for the U.S. and China to reach a “deal.” Of course, it is to no one’s benefit for this “trade war” to continue. So, we believe some sort of agreement, however imperfect, will be reached.
$70 or above Oil Prices – A rally in oil prices would give our energy stocks a nice boost. Although they have already enjoyed a nice bounce, they still have a long way to go to reach Raymond James’ price targets.4
8% Earnings Growth – Earnings are the life blood of the stock market. In spite of fears that earnings growth will halt, we believe modest economic growth and buybacks will keep earnings, and as a result stocks, moving higher.3
9 British Parties Dancing – It’s been difficult for TWO political parties to work together in the U.S. Congress…imagine if there were NINE. That’s how many different parties will have to work together to pass a Brexit deal in the UK. Such an accomplishment would likely bring relief to global markets.
10-Year Treasury not Leaping – A 10-year Treasury yield below 3.5% would likely encourage investors to buy stocks, as yields on many dividend-paying stocks would be greater than Treasury yields. Our fixed income specialists expect yields around 3.2% by year-end.4
11 Sectors Piping –We believe all eleven economic sectors will experience positive earnings growth in 2019, as all sectors continue to advance.4
12 Months of Jobs Growth – 2018 brought record low unemployment in 19 states. We trust this trend will continue.
…and after all that, we won’t even need the partridge in a pear tree. J
We wish you and your family a happy, healthy and prosperous 2019. Please do not hesitate to call with any questions or concerns.
1CNBC, December 31, 2018
2MarketSmith Daily Graphs, December 28, 2018
3Raymond James, Larry Adams, January 17, 2019
410 Themes for 2019, Larry Adams, January 16, 2019
The S&P 600 is an index of small-cap stocks managed by Standard and Poor’s. It tracks a broad range of small-sized companies that meet specific liquidity and stability requirements. Past performance does not guarantee future results and there is no assurance that the objectives will be met. Investing involves risk and you may incur a profit or a loss. The information and opinions provided have been obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. Expressions of opinion may not necessarily be those of Raymond James & Associates and are as of this date and are subject to change without notice. The opinions expressed are provided solely for informational purposes and not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Long-term investing does not insure a profitable outcome. Investment Management Consultants Association (IMCA®) is the owner of the certification marks “CIMA®,” and “Certified Investment Management Analyst®.” Use of CIMA® or Certified Investment Management Analyst® signifies that the user has successfully completed IMCA’s initial and ongoing credentialing requirements for investment management consultants. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. Any information is not a complete summary or statement of all available data necessary for making an investment decision. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investing in the energy sector involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. The companies engaged in the communications and technology industries are subject to fierce competition and their products and services may be subject to rapid obsolescence. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.
