With the 2019 Holiday Season upon us and after a rip-roaring rally so far this year, it’s time to count our blessings, so to speak. It’s perhaps doubly imperative when you think back to how gloomy most market strategists—except this house—were one year ago. It looked like the sky was falling back then. It didn’t.
Below I list the four things that I’m thankful for in 2019, which I believe support the probability that favor a Standard & Poor’s 500 index finish above 3,200 before the year is out.
First, however, a holiday message for our clients and subscribers. As we move into the final weeks of 2019, we owe gratitude and thanks to many. I especially want to thank you all for your continued support, without which we could not be in business. It’s nice to celebrate five years of operation, with clients and readers in 16 countries! Thanks for sticking with us in 2019 and we believe 2020 will be even better.
OK, so what are the four things to be most thankful for in 2019?
● The Federal Reserve Board Chairman Jerome Powell fixed the yield curve. Don’t fight the Fed, and they have been supportive (this year) of risky assets. Remember, the Fed remains the single most powerful market entity in the world. And the U.S. Treasury bond yield curve is now normalized across the term structure.
●China and U.S. finally realize “Trump-Xi partnering.” I believe both sides are genuinely focused on getting a trade deal done by end of this year. While this remains uncertain, “waiting out 2020 elections” is now proving to be a risky strategy for the Middle Kingdom, since President Donald Trump likely looks strong into 2020 and the Democrats would be even potentially harsher on trade.
● Despite the “ Recession-mania ” and the Armageddonistas in the media, U.S. consumers ignored them. Fortunately, they remained optimistic despite pervasive gloom. Michael Cembalest, JPMorgan Asset Management Vice Chairman, wrote a great commentary on November 12 regarding the surprising boldness of those doomsayers and how negativity and gloom is good for their business (see the following link): https://am.jpmorgan.com/gi/getdoc/1383648210719).
In fact, one such economist makes this statement in a recent Financial Post article (see link:) (https://business.financialpost.com/news/fp-street/im-chasing-a-lifelongdreamdavid-rosenberg-says-opening-his-own-shop-not-a-response-to-onextakeover.
● As I have pointed out in previous reports, the prescient powers of the credit market— the slope of the U.S. Treasury 10-year-30-year yield spread—foretold in January that 2019 would likely be a repeat of 2009. James Carville, a well-known Democratic strategist, famously once said if he were reincarnated, he wanted to “be the bond market” because it can intimidate everybody.
The U.S. bond market made two prophetic calls this year. At the start of 2019, the highyield market told us stocks should rise 25% (correct) and the long-term yield curve told us Purchasing Managers’ Indexes would bottom in the fall of 2019 (also correct).
Bottom line: I see equities breaking to upside after “going nowhere” for some 20 months. In the past, “going nowhere for 20 months” has happened three times since 1945. The market is batting 1.000: in three of three instances, upside breakout averaged 50% gains in next 24 months.
A Happy Thanksgiving to All.
