Why you should expect more 1,000-point swings for the Dow Jones Industrial Average in 2019

Share This Article
December 31, 2018 2:46pm INDEXDJX:.DJI NYSE:DIA

dow jones

 

From Barbara Kollmeyer: Goodbye 2018. Don’t let the door hit you…yadda yadda.


The screens are reflecting some green this morning, though that may be little salve in a year that’s set to be the worst since the financial crisis for several big indexes such as the Dow Jones Industrial Average DJIA, +0.53%  and the S&P 500SPX, +0.16% Diving right in, our last call of the day for the year comes from Allianz’s chief economic adviser, Mohamed El-Erian.

In an interview with Fox News on Sunday, El-Erian said he sees no U.S. recession but does think investors could see more of 1,000-point swings for the Dow like one wild day last week. “That is our new reality for a while,” El-Erian said, as he laid out his reasons for why that might be the case.

These are: 1) Jitters over uncertainty for Europe and China growth, the latter of which just reported factory activity at a two-year low in December. 2) Central banks like the Fed are “no longer buying securities,” nor holding down interest rates. 3) Wall Street is no longer BTFD, but “selling every rally,” something that is getting exaggerated by “computer trading.”

But the market needs to focus on one thing, that the U.S would “need a massive market accident to push us into recession,” though things will slow unless there’s some building on pro-growth policies.” He expects the economy to expand 2.5% to 3% in 2019. More on the pessimistic side is Goldman, which cut its U.S. growth outlook to 2% from 2.4% for next year, though again, sees little recession risk.

As bumpy as 2018 may have turned out for some investors, it’s always worth remembering that there are lessons in any great or terrible year.

Trader Stefan Cheplick, who cut his teeth on investing around the time of the financial crisis, shared 50 things he learned in 2018 in a blog post, and more than a couple stand out. Take No. 9, notable with first-quarter earnings around the corner and plenty of jitters where those are concerned. “Quarterly earnings movements are noise. Avoid them at all costs. Stocks move 10%, 15%, 20%, in a few seconds after an earnings report. Don’t ever play in that game,” he says.

At No. 18, he says margins are now his favorite metric to follow, replacing free-cash flow. “Control of margins is power. That’s a company you want,” he writes. He zeros on buybacks with No. 20, saying after the fact they are useless. “You want to find companies that haven’t yet announced a buyback, but are in a position to do so. Sell your shares back to them.”

Here’s No. 34: “I used to believe politics don’t matter when it comes to stocks. I was wrong,” says Cheplick. Yep.

As for what he learned in 2017, one resonates now. “The three-day rule will save you forever — never buy a stock after a big drop. Always wait at least three days”, he says. That may be some advice that comes in handy again in 2019, if a turbulent holiday trading period is a taster of what’s to come.

Feliz año nuevo from all of us at Need to Know.

The market

The Dow Jones Industrial Average DJIA, +0.54 %, S&P 500 SPX, +0.18%    and Nasdaq Composite COMP, +0.10%   all traded higher.

Check out the latest in Market Snapshot

Crude US:CLU8 was drifting lower and facing its worst year since 2015. The dollar DXY, -0.23% and gold US:GCU8 were pretty steady.

It’s all over for Europe, where the Stoxx 600 SXXP, +0.42%  logged its worst return since 2008. The Hang Seng HSI, +1.34%  was one of the few markets open in Asia, closing up 1.3%, but losing near 14% on the year.

The chart

The S&P 500 is a “long ways from a market bottom,” says our chart of the dayfrom Otavio “Tavi” Cosa, global macro analyst at Crescat Capital. Here’s his tweet which shows the U.S. business cycle peaking and therefore plenty of downside for stocks.

The stat

Getty Images

2008 — That is the marker for how stocks worldwide have done this year. The worst-since list is long and commonly ends in 2008, the height of the global financial crisis.

For example, as of Friday’s session, the Dow was facing at 2018 loss of 1,656.82 points, or 6.7% for its biggest one-year point and percentage decline since 2008. It’s also the worst year for the S&P 500, the Nasdaq Composite, the Stoxx Europe 600, the Nikkei NIK, -0.31%  and the Shanghai Composite SHCOMP, +0.44%

The buzz

“Big progress being made,” tweeted Trump on trade Saturday, though some worry he might be overstating things to placate markets. Meanwhile, the White House is pushing China to cough up solid plans after promises it made after the two country’s leaders met in Buenos Aires a month ago.

On the shutdown front, talks broke down over the weekend, as lawmakers went home for the holidays. Meanwhile, Trump says no pay rises for federal employees in 2019.

Sen. Elizabeth Warren says she’s launching an “exploratory committee” for a 2020 presidential run.

Researchers have developed images of fingerprints they say could unlock a third of smartphones.

With its fate in the balance, bankrupt retailer Sears SHLDQ, +35.29%  will close 80 stores by late March 2019.

Steve Eisman, best known for his “big short” on the U.S. housing market in 2007-2008, sees a 50% chance of a “hard” Brexit. He’s shorting big U.K. retailers and banks, such as Marks & Spencer, Royal Bank of Scotland RBS, +1.84%RBS, +1.21%  and Lloyds LLOY, +1.25% LYG, -0.59%

Read: Brexit deadline may be pushed back if January vote fails

The economy

It’s the quality, not the quantity this week. Among the highlights, weekly jobless claims and the ISM manufacturing index, and nonfarm payrolls for Friday, though the shutdown could disrupt some data. The Economist says these are the decade’s best young economists.


The SPDR Dow Jones Industrial Average ETF (DIA) was trading at $232.27 per share on Monday afternoon, up $1.79 (+0.78%). Year-to-date, DIA has declined -5.33%, versus a -6.36% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy) and is ranked #4 of 82 ETFs in the Large Cap Value ETFs category.


This article is brought to you courtesy of MarketWatch.


Read Next



Get Free Updates

Join over 50,000 investors who get the latest news from ETFDailyNews.com!

Most Popular


From Our Partners


Explore More from ETFDailyNews.com

Free Daily Newsletter

Get daily ETF insights from our market experts. Never miss another important market development again!

ETFDailyNews.com respects your privacy.

Best ETFs

We've rated and ranked nearly 2,000 ETFs and ETNs using our proprietary SMART Grade system.

View Top Rated ETFs

Best Categories

We've ranked dozens of ETF categories based on relative performance.

Best ETF Categories