There are a lot of worrying signs out there right now, but one thing that has bolstered optimism is the strength of the stock market in 2019. That said, there are signs appearing that underlying fundamentals are weakening. In particular, daily moves are shrinking, down from 0.9% in the 4 months leading to February, to just 0.4% in February. The slowdown in trading momentum is not only worrying in its own right, but also because the exact same trend appeared before the falls of February and December 2018.
FINSUM: Our counter argument is that average index moves were quite small through several solid years between 2014 and 2018, so it dos not necessarily indicate a problem.
In what sounds like a classic case of “buy the rumor, sell the news”, a major Wall Street figure is arguing that as soon as the US and China reach a trade deal, the big rally in risk assets will be over. The former CEO of Cantor Fitzgerald, Shawn Matthews, argues that “Right now, it’s a risk-on mentality -- you want to be long riskier assets until you get a deal with China … When that happens you certainly want to be looking to scale back”. One of Matthews’ worries is that bond markets are following suit, signaling to him that this is a false rally. “If it was truly a risk-on world and people believed it and it was an extended trade, then you would see the 10-year start to back up. That’s a clear sign there’s some concern about what’s going on out there”, said Matthews.
FINSUM: This is quite an interesting take on the whole situation. We are going to hold off on giving our full view until we have had more time to digest, but we thought this angle was definitely worth sharing.
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.