Eq: Total Market

(New York)

There is a lot of doom and gloom out there right now. The stock market is in major pullback mode over a wide range of fears. One of the main ones is the threat of a recession coming next year. A lot of signs, like the inverted yield curve, are pointing towards an economic reversal. However, according to Barron’s, the reality is that a recession is unlikely. Rather, we will likely just return to the post-Crisis norm of slower, steadier growth (think 2.0-2.5%). A couple of factors will weigh on growth, including higher rates and a fading influence of the most recent tax cuts.

FINSUM: A return to normal growth seems about equally likely to us as a recession. No one really knows. A lot of it may come down to how hawkish the Fed is, as the central bank could easily steer the economy into a recession.

(New York)

Charles Schwab, a major conduit for retail investors’ views of the markets, has just come out very bearish. The broker’s chief investment strategist is full of interesting, and bearish insights for 2019. For instance, she explains that earnings growth estimates are far too high (at 6-8%) and that an earnings recession is likely. Schwab expects a rolling bear, if not a full bear market, to continue. The broker pointed out that nearly 50% of S&P 500 stocks are now already in a bear market (down 20% or more).

FINSUM: It is pretty difficult to find reason to be bullish on shares right now. The economy seems to be past peak, an intractable trade war is growing, and a yield inversion is taking shape. That said, the market loves to climb a wall of worry.

(New York)

One of the guiding mantras of the markets since at least 2015 has been to buy the dip. The generally idea was that the market was on an upward trend, so every little downturn presented a good buying opportunity. One of the big problems with the markets right now is that such dip-buying has all but evaporated. With a trade war raging and a recession on the horizon, investors have lost faith that the direction of the market is upward, which means each dip now represents additionally downside risk instead of a buying opportunity.

FINSUM: That core belief in the direction of stock prices has been badly shaken and it is hard to imagine it will return any time soon.

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