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.
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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 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.
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%
“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.
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.
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%
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.
This article is brought to you courtesy of MarketWatch.