Large Cap stocks make up most of the gains this year, far outpacing smaller stocks. A reversal of this trend could come soon, in March even.
January finished January down 0.2%. But the does not necessarily meaan the rest of the year will be. We look at the historical record to see how other years performed when January did not do well. It turns out 2 of 3 indicators often are enough to propel the markets higher.
Fundamentally speaking, US growth is slowing. Technically the markets are consolidating. After a steady rise from early-October through mid-January, DJIA, S&P 500 and NASDAQ appear to be taking a breather. Monetary policy remains loose, interest rates are low and are likely to remain low. QE4 or repo market support is now expected to continue through at least April 2020. February is seasonally neutral for markets, and investor sentiment is fading. Any pause in market trends is likely short-lived.
Natural Gas, Energy and Copper still have to show signs of life to fulfill their usual bullish winter runs. Meanwhile, Strong US equity markets have lead to excellent returns in the model portfolios that adhere to seasonal trade stratagies. Expect some modest seasonal weakness soon, though.
With the new year and new decade already here, the markets closed on one of the strongest years for the US equity market in the past decade. The S&P 500 (SPX) was up nearly 29% in 2019 – the second best year in the 2010s, only 2013’s return of just over 29% beat it. All broad sectors produce gains last year, with nine out of the 11 broad sector SPDR ETFs posting gains greater than 20%. The top three sectors, using SPDR ETFs as proxies, were technology (XLK), communication services (XLC, basically a technology ETF), and financials (XLF), returning 47.90%, 29.92%, and 29.22%, respectively. Energy (XLE), on the other hand, was the worst performing sector on the year with a return of just 4.69%. Energy has now been the worst performing sector in five out of the last six years.
As we have discussed previously, 2020 is likely to produce more gains! In fact, when the S&P 500 (SPX) had gains of 20% or more, which happened in 2003, 2009, and 2013 during the last two decades, the average return in the following years (2004, 2010, and 2014) was 11%.
As we move into 2020, we want to continue to overweight portfolios to favor the areas of leadership in the market highlighted above. With that said, the commodities market deserves attention in 2020. While crude oil has gained many investors’ attention recently, which is unsurprising given the activity in Iran, gold has been the more stable trend within the commodities/alternative space recently.
With worldwide central bank rate cuts at record highs and inflated SPX valuations, Wall Street earnings estimates for Q1 2020 look excessive. This is a typical sign of last cycle bull market. Mega-caps are able to outperform and hold earnings margins, but can they continue?
We review what JP Morgan and BAML analysts have to say about the current state of the US economic landscape. Why would they make top recommendations in Energy, Small Caps, Industrials and Transportation for 2020?
January is typically a good month for US stocks. However, during election years that is not always the case. Nasdaq stocks usually perform the best in January.
Political stability creates a solid back drop for a decent 2020. The US Fed is accomodative while weak earnings and high valuations remain.
Novemeber is tracking the seasonal patterns very closely. We still expect a mild pullback early next week, but from then on we are likely to see post-Thanksgiving gains. Early December can be disappointing for bullish traders, but as Christmas approaches the bulls come back to the parade.
Markets are up strongly since we turned bullish. We expect that momentum to continue after a mild pullback. Overbought signals are here.