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.
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.
If this stat doesn’t put the current state of the market into perspective for you, nothing is likely to: the fall in shares this month has been the worst December since the Great Depression of the 1930s. Stocks have fallen 10% alone this month, a big chunk of the 16% fall since the September peak.
FINSUM: So some of the fears about the Fed have been eased today because of the NY Fed’s comments (not that those mean much), but the new fear is about the threatened government shutdown. We imagine the shutdown will work itself out, but the trade war and threat of recession loom large. It is hard to imagine any significant rally before the New Year.
How do you know when the market is bad? When the safest stocks are also the best performing. It sounds like an old market joke, but it couldn’t be more true right now. Stocks are down around 10% this month, the worst December since the Great Depression. A good sample of these low volatility stocks can be found in Invesco’s S&P 500 Low Volatility ETF (SPLV). That ETF has fallen just 7% from the market’s September peak, while the S&P 500 has fallen 16%. Looking at correlations, the majority of stocks with the best 90-day momentum are also those with the lowest volatility.
FINSUM: The market is playing defense, and with good reason.
Amazon has been hit hard lately. The company’s surprise earnings caught the market off guard, which led to a big tumble in the shares, with the stock dropping over 10%. However, that presents a good buying opportunity, says Barron’s. The market was nervous because of the slowdown in revenue growth, but according to one analyst “We believe revenue growth is becoming a less relevant metric for Amazon given the outsize growth of the company’s cloud and advertising businesses”.
FINSUM: Amazon is still a fast growing business, but it is becoming more mature, which means expanding margins are going to be a key metric to watch. That is an area the company is excelling in.