In our December 27th blog post we wrote that the most likely scenario from the oversold condition and the rough Christmas week was an 8-10% rally from those levels, and that until the S&P 500 traded above 2600, we should continue to have in our mind that the market is in a downward trajectory.
Well, the world didn’t end and the S&P 500 has miraculously rallied over 11% to close above 2600 for the first time since December 13th. The Federal Reserve has struck a more patient tone to the gradual rising of interest rates and the first taste of corporate earnings showed significant slowing in the fourth quarter, but also that the American consumer remains quite healthy. As long as the data is consistent through earnings season, we feel the likelihood of recession remains small.
But just because we don’t see a recession coming, does that mean the stock market will continue to drift higher? The short answer is no, but we’re now into the place that was previously support for the stock market (now could be resistance). We anticipate a pause in the stock market’s advance, probably more of a wait and see approach to earnings over the next 2-3 weeks, but once we’re through most of the reports, it’s quite possible (even probable) the market stops pricing in the sky falling, and we could continue a very healthy rise throughout most of 2019. Just like last year, the S&P 500 is up quite a bit in January (4.5% and counting). If we continue at this pace, the S&P 500 will be up almost 50% this year! That’s definitely not going to happen, so we need to remain on guard. We remain cautiously optimistic, because things can change very quickly.
The biggest takeaway from the last month should be a confirmation that your long-term goals shouldn’t be affected by short term market gyrations. Panicking and getting more defensive over the last month was the WRONG move. If you’ve felt like the short-term price movements over the last couple months were too much to handle, let’s setup a conversation and tweak your plan so you can sell enough to get to sleep at night. Now that we’ve had a chance to breathe, let’s look at your plan, unemotionally and in the light of day.
As for our picks in 2019, an update is below
- China deal – nothing here, despite the rhetoric, but FXI is up 5.48% YTD
- Brazil (EWZ) – Up 5.28% YTD
- Semiconductors (SMH) – up 2.13% YTD, AMD up 5.5% YTD
- Crude Oil – up 13% YTD
- US Dollar – down .61% YTD
– Adam