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Learner
Participant ○○

Market Environment On 1/2/2020

2019 was a great year for the stock market.  People who got out because the market was "very high" did not turn out to be correct al least in 2019. What is the current situation?

Low inflation rate

Low interest rates

Healthy corporate earnings

No recession in sight, so no bear market in sight

Investor mood not similar to 1999, PE ratios not insane as they were in 1999

Subsiding trade war concerns

Historically, presidential election years have been good for the stock market.

I am no market timer but, for at least few more months, I see no reason why we should lower our chosen equity allocation we deem appropriate for our situation.  Even if the market starts going down, one can stay put if your allocation to stocks is in the appropriate range now.

21 Replies
Bentley
Contributor ○○○

Re: Market Environment On 1/2/2020


@Learner wrote:

2019 was a great year for the stock market.  People who got out because the market was "very high" did not turn out to be correct al least in 2019. What is the current situation?

 

 Current situation? All systems go. Greenlight. Hop aboard, it has been a great ride. We have been very fortunate to have been investors during the greatest bull market of our lifetimes. Imagine if you had reacted to all the noise after the market topped 10,000.

 Tune out the noise. Those who claim to be nervous and forecasting this market will end badly do a disservice to those who have an appropriate allocation for their ability, need, and willingness for risk. Trying to construct portfolios for both good times and bad times and then guessing when to use which is a sure way to subtract value.

arriba
Participant ○○○

Re: Market Environment On 1/2/2020

Just the messenger here...

Current 2020 S&P Targets per CNBC this AM:

PiperJaffray:  3600

Oppenheimer:  3500

Credit Suisse:  3425

JP Morgan:  3400

GoldmanSachs:  3400

Citi:  3375

B of A:  3300

Barclays:  3300

Wells Fargo:  3250

Morgan Stanley:  3000

With the S&P having closed 2019 at 3231, range is from GS's 11+% Gain to MS's 7.1% Loss

 

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sugarhill6
Explorer ○○○

Re: Market Environment On 1/2/2020

I'm 5-8 years from retirement, so realizing that goal is bigger than squeaking out an extra 5% return....as I am not trying to make it 10-15 years out because I got greedy.

I'm a seller into the strength of the market ...and reinvesting into more appropriate assets that provide better downside protection.   ...and 2019 was still a fantastic year for me too.      

 

 


@Learner wrote:

2019 was a great year for the stock market.  People who got out because the market was "very high" did not turn out to be correct al least in 2019. What is the current situation?

Low inflation rate

Low interest rates

Healthy corporate earnings

No recession in sight, so no bear market in sight

Investor mood not similar to 1999, PE ratios not insane as they were in 1999

Subsiding trade war concerns

Historically, presidential election years have been good for the stock market.

I am no market timer but, for at least few more months, I see no reason why we should lower our chosen equity allocation we deem appropriate for our situation.  Even if the market starts going down, one can stay put if your allocation to stocks is in the appropriate range now.


 

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jjustice
Explorer ○○○

Re: Market Environment On 1/2/2020

Who said, "If it can't go on forever, it won't"?  Herb Stein?

I've made a small reduction in my stock allocation, in addition to routine re-balancing.  I don't mind being wrong, but I don't want to be wrong and greedy.

John

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Dawgie
Explorer ○○

Re: Market Environment On 1/2/2020

Forecasts are meaningless. Remember, this time last year, many so-called experts were predicting gloom and doom for stocks as well as bonds. I maintain an asset allocation appropriate for my age, risk tolerance and income needs. Let the markets do what they will. I’m good.

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arriba
Participant ○○○

Re: Market Environment On 1/2/2020


@Dawgie wrote:

Forecasts are meaningless. Remember, this time last year, many so-called experts were predicting gloom and doom for stocks as well as bonds. I maintain an asset allocation appropriate for my age, risk tolerance and income needs. Let the markets do what they will. I’m good.


Forecasts are meaningful to investors who know how to use them.  I've used S&P projections, along with other data, for 40+ years with reasonable success in setting my AA for the coming 12 months.

The notion that forecasters last year were predicting gloom and doom in 2019 is a fallacy.  It's one of those things that got parroted enough times that it became "truth" to many. 

It simply wasn't the case. 

Below is a link to an article with 2019 projections from strategists of 17 major firms. 

  • 15 of 17 strategists projected 2019 S&P increases of at least 17.7 % and
  • 10 of 17 strategists projected increases of at least 19.7%.

Hardly "gloom and doom" projections under any circumstances or by any translation or interpretation..

Were they wrong?  Yeah, several of them by quite a bit. 

BUT...the S&P was up a mind-numbing, whopping, historical 28.9%.

So then, so what? 

So, on a personal note, the collective VERY POSITIVE projections of these types of strategists at EOY 2018/BOY 2019, along with a couple of my fave guys/gals (most notably Tom Lee), caused me to significantly increase my stock allocation in 2019.  It proved to be a life-changing TR year.

Given the significant Oct-Dec 2018 correction, coming 3rd yr of a POTUS, and a China trade deal likely (IMO at least it was/is), trust it musta been fear that caused so many to miss yet another year of this bull.  

https://www.cnbc.com/market-strategist-survey-cnbc/

NOTE:  I've rolled the 2019 projections to EXCEL, added two calc columns, and sorted by highest projection.

Firm

2019 S&P 500 Price Target2019 S&P 500 % G/L TargetVariance
Deutsche Bank325029.6%0.74%
Fundstrat318527.0%-1.86%
Goldman Sachs310023.7%-5.25%
Citigroup305021.7%-7.24%
Wells Fargo Investment Institute303020.9%-8.04%
Credit Suisse302520.7%-8.24%
Barclays300019.7%-9.24%
BMO300019.7%-9.24%
BTIG300019.7%-9.24%
JPMorgan Chase300019.7%-9.24%
CFRA297518.7%-10.23%
Oppenheimer296018.1%-10.83%
Bank of America Merrill Lynch295017.7%-11.23%
Canaccord Genuity295017.7%-11.23%
RBC295017.7%-11.23%
Morgan Stanley27509.7%-19.21%
UBS25501.7%-27.18%
GLI2019
Contributor ○○

Re: Market Environment On 1/2/2020

I'm with you Dawgie.

I don't know why folks go through endless mutterings just because a calendar rolls over from 2019 to 2020.

The one thing I DO KNOW is I'm a few days older..😉

Bob

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Dawgie
Explorer ○○

Re: Market Environment On 1/2/2020

Arriba - You provided some convincing information, assuming those forecasts were made at the beginning of 2019 and not after the fact. My perception that forecasts were gloomy for 2019 was probably due the prevailing pessimism towards stocks by so many posters on these forums. I sure hope that young investors (or even middle aged ones) are not influenced by the many perma-bears on this forum. One of the big reasons why I was able to retire sooner than planned is that I maintained a healthy allocation to stocks (70-80%) up until a few years before retiring— and I didn’t bail on stocks during bear markets and corrections.

That said, I still don’t trust market forecasts because you can basically find predictions that support any particular sentiment.

arriba
Participant ○○○

Re: Market Environment On 1/2/2020


@Dawgie wrote:

Arriba - You provided some convincing information, assuming those forecasts were made at the beginning of 2019 and not after the fact. My perception that forecasts were gloomy for 2019 was probably due the prevailing pessimism towards stocks by so many posters on these forums. I sure hope that young investors (or even middle aged ones) are not influenced by the many perma-bears on this forum. One of the big reasons why I was able to retire sooner than planned is that I maintained a healthy allocation to stocks (70-80%) up until a few years before retiring— and I didn’t bail on stocks during bear markets and corrections.

That said, I still don’t trust market forecasts because you can basically find predictions that support any particular sentiment.


No need to assume when they were made...

Here's a different article dated 12/31/18, "NOT after the fact."

https://finance.yahoo.com/news/wall-street-strategists-forecast-sp-500-2019-131219152.html

You'll find that the respective projections reasonably/exactly tie to the previously posted CNBC article.

On your last comment...

Not last year you couldn't, unless you concentrated on UBS' outlier/measly projection of a 1.7% S&P gain.  Note that along with that UBS analyst's projection of 1.7% was UBS Art Cashin's projection for a "flat" 2019. 

---------------------------------------------------------------------------------------

Additionally, as for the "market" environment a day later...

Nice opening act on 01/02 followed by a geopolitical scare overnight.   VERY positive signs today however as Mr. Market has effectively staved off any real damage, showing (to many) that its health is intact.

That said, while 2020's biggest risk still appears to be the election, in the ST...

https://www.cnbc.com/2020/01/03/heres-what-happens-to-the-markets-after-major-middle-east-events.htm...

Man, per the charts, too bad investors aren't texted/emailed a day in advance that these "crises" will happen tomorrow.  Who do we see about that?

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arriba
Participant ○○○

Re: Market Environment On 1/2/2020

Mainly posting this to show the 2020 projections, but...

some more data to support that investors who missed the 2019 US stock party musta been either 

  • sleeping under a rock,
  • still too nervous about investing in stocks after 2008,
  • living in the bond OEF dream world, or
  • all of the above.

https://www.cnbc.com/2020/01/11/stocks-have-less-upside-this-year-according-to-analysts-who-know-the...

Excerpt

CH 20200106_share_price_vs_price_targets.png

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arriba
Participant ○○○

Re: Market Environment On 1/2/2020

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FD1001
Valued Contributor

Re: Market Environment On 1/2/2020


@arriba wrote:

http://funds-newsletter.com/jan20-newsletter/jan20-new.htm


Good article and...a quote

===============

"no matter how expert, can consistently predict correctly the future performance of stocks, or the factors that seem to influence whether they go up or down. But we do know that returns show that, in the past, stocks have gone up each year about two-thirds of the time. This makes an investment in stocks at the beginning of any upcoming year to have a better than average chance of turning out positively."

It is pretty common knowledge that past returns cannot predict what the next 12 months will be

But it is possible that a strong decade of returns, or even a half decade, suggests that the next decade, or half of one, will lead to the opposite results, that is, much lower returns than we experienced between 2010 and 2019."

==================

FD: The above is accurate..and why predictions are shot in the dark and I never based my investments on future predictions and only on my risk tolerance and goals of that moment and what I need to achieve in the future.

When I was a younger accumulator I was at 85-90% in stocks so where can I go? to 90%?

When I started planning my retirement, I had a specific date/year in mind, how to achieve it and it was reflected in my asset allocation, should I increase my stock % by a lot? it made no sense.  Sure, after stocks go down you can make an adjustment (rebalance) but to make a change based on predictions? never did and never will.

=============

GMO used to be one of the best predictors of the stock market for decades but in 2010/12 they predicted that in the next 7 years US LC would make 0.4% + 2.5% inflation = 2.9% and US SC would make -1.9%+2.5%=+0.6%.   The results show that in 7 years SPY made 14.5% and IWM 12.7%.  I realized at that time the Fed is the one who made huge adjustments and can dictates markets.  Posters were all over me, how can you don't trust GMO? they are a top shop.  Well, GMO was hugely wrong.

GMO 7-year forecast 12-31-2010 (3).PNG

 

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Learner
Participant ○○

Re: Market Environment On 1/2/2020

I'll take this opportunity to completely agree with FD.

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3M
Explorer ○○

Re: Market Environment On 1/2/2020

On balance, I agree that 2020 is poised to be a better year for US stocks than bonds and that includes junk bonds.  While there are a number of positives, there are also a few concerns that could over time develop into significant problems.

Only time will tell for sure.

However, for now, I am looking at 90 day treasuries yielding 1.54% with the 10 year at 1.82%.  Baa bonds are going for 3.88% and the HY spread is 3.49%.  Meanwhile, the S&P forward earnings are 4.97% while trailing earnings are 4.31%.  So, the straight forward math is favoring stocks while junk  bonds are expensive.  If the S&P were trading on par with Baa bonds, I'd say there is an option, but it's not.

Yes, unemployment is really low, however that's actually bad because it could lead to inflation.  Consumer financial burdens are about as low as it gets.  Mortgage and Consumer debt load is under 10%.  So, plenty of room for people to start buying.  Problem is that they just aren't!  Instead, people are squirreling away savings and complaining about how lousily their bond and CD's are doing.

As many of us know, the Fed tried to raise rates last year, which would have eventually given savers something positive to look at.  However, the anemic economy started to falter ever so slightly and the Fed quickly did a 180 and cut rates back to zero by real measures. 

So, my contention is that it will probably the zero rate banking policy that will ultimately drive this market higher.  Not because the economy will be doing that much better or even that earnings are improving a whole lot.  Will it eventually make market metrics look silly and stupid to many of us?   Yes, but the alternatives are not appealing either.

 

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arriba
Participant ○○○

Re: Market Environment On 1/2/2020

Along with the election (of course), this issue (which I've been following for a while now) is one of the bigger ones out there as we sit/stand at the Wall of Worry, circa 2020.  Worthy presentation of it in this article.

https://www.cnbc.com/2020/01/13/five-biggest-stocks-dwarfing-the-market-at-unprecedented-level.html

Excerpt:

CH 20200113_top_five_sp500_companies.png

 

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Juris2
Participant ○

Re: Market Environment On 1/2/2020

Those corporations are a large share of several of my LC Growth investments. But almost as important to me is that they employ some of my nieces and nephews. Apple and Microsoft, in particular.

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steelpony10
Participant ○○

Re: Market Environment On 1/2/2020

      The current market condition is "Irrational Exuberance" but with better business conditions and more volatility. We do as usual take profits in steps on the way up at our own risk level. Ours is about 10% for most individual growth stocks only. Everything else is left as is mostly on dividend reinvestment. Collecting (saving) some profits that have nothing to do with actual earnings leaving us mostly riding the rising P with a slowing E until ? There still is no crystal ball so tune the financial gypsies out. Maybe the answer is don't be to greedy or to scared to take some profits. Then you can kick yourself either way. lol.

     *Should both parents with small children left at home travel on one plane together or travel separately to the same destination? Answer that.

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Juris2
Participant ○

Re: Market Environment On 1/2/2020

@steelpony10. My parents always took separate planes when flying across the country from L.A. to N.Y.

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TheWizard
Explorer ○○○

Re: Market Environment On 1/2/2020

When I started engineering employment in 1972, the existing employee policy manual still had something about team members taking separate flights to a common destination when group travel was required. 

That clause disappeared at some point (I'm guessing shortly after that), since commercial air travel is safer than driving, per distance for sure if not per hour.

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