About 15 months back, I wrote bog Four Horsemen of the Markets about what could end the good times markets were having (back in 2017). Other than taxes, all other three (Fed, Earnings and Trump) played a role in market turmoil exactly one year later producing worst December since 1931. Looks like I was year earlier! Now that scenario has played out, let's look at antidotes for Four Horsemen of markets (for references to Four Horsemen, read on wikipedia and my blog)
Markets have recovered half of their losses after reaching low on Christmas Eve and playing the theme of Markets take steps going up and take elevator coming down. Let's look at the antidotes which would keep markets chugging along potentially reaching all time highs in 2019 again!
FED and Interest Rates:
Fed did act as horseman and played its role for Q4 turmoil by declaring its intentions of raising interest rates almost like autopilot. No one including President Trump liked it and Fed also realized that it may have gone beyond what it intended to convey. New year brought some dovish tone from Fed including chairman Powell. Now instead of saying "autopilot", they are saying policy of interest rates would depend on various economic factors. So now markets are feeling that Fed is on its side and interest rate hikes are either done or max 1-2 hikes are in front of us!
Earnings:
While most people believe that we are reaching peak of longest bull market and peak earnings, no one expected company like Apple giving major negative earning warnings. While some of the Apple problems are specific to company (high-priced iPhones, incremental innovation in iPhone and no new must have products/services in sight), some of the signs were also indications of slowing economy in China and results of trade war. After Apple's bombshell announcement, surprisingly earnings season has been relatively good. Especially banks have been producing record earnings and energy companies are also on mend. There were also major M&A in biotech means big bio/pharma companies seem to be confident about their earnings. That leaves Tech outside Apple. In next two weeks, we will hear from Microsoft, Alphabet, Facebook and most importantly Amazon. Most of them should announce reasonably good earnings and forecasts.
Trade War or Truce:
NAFTA became USMCA without much fanfare. Now most important is US-China trade discussions and deal it may produce. This has potential to change the world trade landscape for next decade and hence markets are so fixated on these negotiations and react wildly (up or down) depending on any news coming out of these discussions. Initial rounds seem to be going well. Another round is coming up end of month. Hope both sides agree to amicable deal and announce by middle to end of Feb to avoid "Truce" becoming "War". Given the sensitivity of this deal, both sides are extending hand. Even though US has stronger hand, US presidential election cycle would motivate President Trump to do the deal and declare victory.
GDP:
China is slowing closer to 6%. India is entering into election cycle and GDP would be closer to 7%. US will be around 2% (even with shutdown entering into 5th week. Rgarding shutdown, its whole another topic to write about) and EU (due to Brexit mess) would be around 1-2%. So overall world GDP growth is slowing down maybe by 50-100 basis points compared to 2018. Slowing down is better than entering into recession as feared just few weeks back. So as long as first three antidotes work, world GDP would still be growing in 2019 which should be good for employment and markets.
So if you believe these antidotes would work and looking for investments (many people ask me for specific stock tips), check out my new year blog "BEST of 2019". Many of those recommendations are up by double-digit but there is still some upside left!
/Shyam
Markets have recovered half of their losses after reaching low on Christmas Eve and playing the theme of Markets take steps going up and take elevator coming down. Let's look at the antidotes which would keep markets chugging along potentially reaching all time highs in 2019 again!
FED and Interest Rates:
Fed did act as horseman and played its role for Q4 turmoil by declaring its intentions of raising interest rates almost like autopilot. No one including President Trump liked it and Fed also realized that it may have gone beyond what it intended to convey. New year brought some dovish tone from Fed including chairman Powell. Now instead of saying "autopilot", they are saying policy of interest rates would depend on various economic factors. So now markets are feeling that Fed is on its side and interest rate hikes are either done or max 1-2 hikes are in front of us!
Earnings:
While most people believe that we are reaching peak of longest bull market and peak earnings, no one expected company like Apple giving major negative earning warnings. While some of the Apple problems are specific to company (high-priced iPhones, incremental innovation in iPhone and no new must have products/services in sight), some of the signs were also indications of slowing economy in China and results of trade war. After Apple's bombshell announcement, surprisingly earnings season has been relatively good. Especially banks have been producing record earnings and energy companies are also on mend. There were also major M&A in biotech means big bio/pharma companies seem to be confident about their earnings. That leaves Tech outside Apple. In next two weeks, we will hear from Microsoft, Alphabet, Facebook and most importantly Amazon. Most of them should announce reasonably good earnings and forecasts.
Trade War or Truce:
NAFTA became USMCA without much fanfare. Now most important is US-China trade discussions and deal it may produce. This has potential to change the world trade landscape for next decade and hence markets are so fixated on these negotiations and react wildly (up or down) depending on any news coming out of these discussions. Initial rounds seem to be going well. Another round is coming up end of month. Hope both sides agree to amicable deal and announce by middle to end of Feb to avoid "Truce" becoming "War". Given the sensitivity of this deal, both sides are extending hand. Even though US has stronger hand, US presidential election cycle would motivate President Trump to do the deal and declare victory.
GDP:
China is slowing closer to 6%. India is entering into election cycle and GDP would be closer to 7%. US will be around 2% (even with shutdown entering into 5th week. Rgarding shutdown, its whole another topic to write about) and EU (due to Brexit mess) would be around 1-2%. So overall world GDP growth is slowing down maybe by 50-100 basis points compared to 2018. Slowing down is better than entering into recession as feared just few weeks back. So as long as first three antidotes work, world GDP would still be growing in 2019 which should be good for employment and markets.
So if you believe these antidotes would work and looking for investments (many people ask me for specific stock tips), check out my new year blog "BEST of 2019". Many of those recommendations are up by double-digit but there is still some upside left!
/Shyam
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