Stocks got wounded very badly in the last quarter of the year, with many stocks entering deep bear markets. Many analysts think stocks are in for a good year, so many feel it is a good time to buy. So what are the best rebound picks for 2019? Sector-wise, it might be best to look at IT, energy, communication services, and utilities. In terms of individual names, consider Noble Energy, Conagra Brands, Alexion Pharma, American Airlines, Electronic Arts, Norwegian Cruise Lines, Tiffany & Co., and Citigroup.
FINSUM: Quite a diverse list! But then again, that is what happens when the S&P 500 falls 20%--there are a lot of wounded stocks to choose from.
Many advisors may respect the opinion of Bob Rodriguez. The former fund manager achieved some acclaim by accurately forecasting the Dotcom bust and Financial Crisis. The former CEO of First Pacific Advisors says that a financial crisis is now a “near certainty”. His fear is that excess leverage in the economy, coupled with a recession, will cause a big crisis. He believes “delusional” equity markets are now only starting to recognize this reality.
FINSUM: The preconditions for a crisis are there—a big buildup in corporate debt and pending recession. However, the timing and magnitude are both big question marks.
If you think the real estate market is bad now, just wait. That is the argument from James Stack of InvesTech Research. Stack accurately called the last housing crisis and also forecast the slowdown in 2018. Now he is saying that 2019 is going to be the worst year for a long time. “Expect home sales to continue on a downward trend in the next 12-plus months. And there’s a significant downside risk to housing prices if a recession takes hold”, says Stack. He does admit that it is too hard to say if housing is currently in a bubble, but that prices are very likely to fall.
FINSUM: Mortgage rates have risen sharply and prices are quite elevated, so it is no wonder prices have fallen. However, real estate hasn’t seen the exuberance it did pre-Crisis, so we do not think this will be a meltdown by any means.
Investors may have gotten excited on Friday. Accommodative language from the Fed has a way of doing that. However, there is no reason to get to exhilarated, as this rally doesn’t seem to have legs. One of the big worries is about the largest group of shareholders in the country—Baby Boomers. Because this generation is retiring, they are likely to sell into any rally as they don’t have time left to wait for a big recovery. Accordingly, any rally will likely lose momentum quickly. As evidence, redemptions over the last four weeks have totaled $164 bn, or more than 1% of money in all stock and bond funds.
FINSUM: This is an interesting argument and one we tend to take seriously given the size of the Baby Boomer population and their large shareholdings. That said, we do not think it is large enough to affect the fundamentals of the market, just alter the amplitude.
One of the most well-known finance professors in the nation, Jeremy Siegel of Wharton, says that the market looks sets for a great stretch. The catch is in order for that great run to happen, we need to avoid a recession. According to Professor Siegel, “My feeling is that the market is virtually positioned for a mild recession, but I just don’t think that it’s going to happen … If we avoid a recession, we’re going to have a really good market”. He continued “I think we swung too positive last summer and now I think we’ve swung too negative”. Siegel believes that if a recession does hit, the market is in for another 5-10% fall.
FINSUM: We would have to agree. This selloff, which has corresponded with great earnings in 2018, is basically a recession already being priced in (maybe not quite), so if the recession never comes, at some point there is going to be an “all clear” rally.