Displaying items by tag: bear market

(New York)

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.

(New York)

Retail is in midst of its biggest selloff since the Financial Crisis. Stocks in the sector have not fallen this hard, this fast, since 2008, and that includes the 2017 panic in retail. Retail stocks had been swept up in a sort of cautious optimism this year that had allowed them to see gains. However, they have gotten caught on the wrong side of fears over the economy and trade war, falling a whopping 17% this quarter alone. The big tumble comes despite a quite bullish Christmas sales forecast.

FINSUM: Retail has a lot of problems facing it right now. Outside of the well-known threat of ecommerce, there is also rising labor costs which are pinching margins at the same time as revenue is getting tighter.

(New York)

Goldman Sachs is sending a big warning to the market, but in its own way, of course. The bank’s strategy team has just published a new note telling investors to get “defensive” given the high uncertainty surrounding the market next year. The bank is uncertain about the direction of the stocks, but is leaning towards them either rising or gaining significantly, with a middle ground seeming less likely than usual. Institutional investors are worried that a recession will arrive in 2020, and historically speaking, the market usually falls by more than 10% in the year preceding such a downturn.

FINSUM: That last point raises the interesting question of whether the recession will arrive in 2019 and this is the 10%+ downturn preceding it. That would actually be better than Goldman’s take.

(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.