For all the uncertainty over everything from the U.S. economic outlook to trade tensions, and even the reason behind massive swings in stocks, Bloomberg strategist Michael Regan notes that most market participants were certain of one thing as the calendar turned to the new year:
a 2019 rebound in U.S. equities, after their worst year since the global financial crisis.
The consensus is calling for a stronger stock market, with double-digit percentage gains for the S&P 500 in the coming year.
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The average estimate from a survey of 170 Markets Live readers is for the S&P 500 to close the year at 2,799, implying a 12% gain, which is in the neighborhood of the Markets Live bloggers’ forecast.
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Wall Street strategists are more bullish, with a mean estimate of 2,975, or a 19% advance
While Regan warns contrarians to beware (saying that this doesn’t look too far-fetched, considering the history of U.S. equities and back-to-back yearly declines in the S&P 500 are rare, and when the market is down for a single year, the following year often produces out-sized returns).
Hell, why not believe the strategists and analysts, they nailed AAPL right?
But, as we noted previously, BofA’s Michael Hartnett has a laconic view on the groupthink that once again appears at the start of the year:
“the horror, the horror” especially since he thinks that there is one key capitulation that has yet to take place: that of the sell-side, as Bloomberg consensus forecasting 10-year Treasury @ 3¼%, S&P500 @ 2975 by end-2019.
And he is not alone, as The New York Times reports that legendary investor Jim Stack, president of InvestTech Research, believes that the worst isn’t over and that the Dow and S&P 500 will soon be down 20 percent from their peaks, retreating into a bear market. After correctky warning at the start of last year that…
“If there are any certainties, one will be that this party will eventually come to an end…
And when it ends, it will end badly, and with high volatility.”
He is perhaps worth paying attention to again this year as he told NYT that even though valuations have come down and macroeconomic indicators “have remained remarkably strong,” Stack says that he is still defensive and hasn’t changed his bearish allocation, adding that this week’s ISM collapse suggests “serious cracks” are starting to appear in the economy.
And that was before a revenue warning from Apple sent markets into another steep fall on Thursday, only to retrace it all in a epic reversal today as Powell shifted into full PPT mode, proclaiming America’s economic momentum strong…
Which Stack expected;
“I think the Fed will stand down and put future rate increases on hold,” he said, “which could stabilize the market, at least for the time being.”
However, Stack reminds investors of one key lesson.
“A lesson from history is that the market leads the economy by a lot longer than investors realize.”
If the economy is headed toward recession, as the latest stock market declines suggest it may be, “we won’t see the first economic warning signs until the first three to five months” of 2019. Among the leading indicators he’s watching for signs of weakness are consumer confidence, housing starts and unemployment claims.
Of course, the unrelenting cry from the asset-gatherers and commission-takers is how ‘cheap’ the market has become on a forward-P/E basis:
Mr. Stack, however, points out correctly that in the event of an economic downturn – or even a significant slowdown – “those projected earnings will go out the window.”
And the legendary investor concluded by pointing out his surprise at the extremes reached in December, without even “a single hard warning sign of recession on the horizon.”
“Can you imagine,” he asked, “how volatile it will be when we do have those warnings?”
Given today’s panic-bid back to Wednesday’s highs…
Nothing would surprise us anymore.
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