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.
There are several market tendencies or historical biases that we highlight throughout the year. One historical tendency worth noting at this time of year is the “January Effect.” The “January Effect” refers to the tendency of small cap stocks (as a group) to outperform their large cap counterparts early in the calendar year.
Markets are up strongly since we turned bullish. We expect that momentum to continue after a mild pullback. Overbought signals are here.
November is generally a very good month for US stocks. However, in years preceeding US Presidential elections, November has not always shown a strong performance. This year, options expiration week comes early. Our calendar shows the dates investors need to watch.
Pending anymore tweets and geopolictical uphevals, we can expect the market to move higher toward the July highs until the last week of the September. Strong bullish market moves will likely remain elusive until November.