Market Strategy 2/19/2019
- February 19, 2019
How Long Has This Been Going On?
Pondering the longevity of the GBM (great bull market) as its tenth anniversary approaches
Key Takeaways
- In a holiday abridged week investors will continue to keep a close eye on trade negotiations, the Fed’s minutes and the balance of Q4 earnings season.
- The rally since December 24 has been nothing but spectacular, reminding us that even as things get better there’s never an “all clear” signal sounded over the markets.
- With nearly 80% of companies in the S&P 500 having reported, earnings are up 11.1% on revenue growth of 6.6%.
- Last week’s data on December retail sales was much weaker than expected but the University of Michigan’s read on February consumer sentiment rebounded, suggesting that a rebound in sales may be coming.
Investors returning to work after the three-day “Presidents Day” weekend will have plenty to consider in this abridged trading week. With the S&P 500 having delivered six weeks of gains out of the seven weeks since the start of the year bulls, bears and skeptics alike are likely to consider just how much more the benchmark has left to rally in 2019 after delivering an unequivocally spectacular rebound from the low reached on December 24th of last year (see chart on the next page of this report).
Once again the bull market appears to have been “saved by the bell,” slipping out from the jaws of defeat as economic and corporate fundamentals and hopes for a resolution to the trade war provided enough support for a positive change in sentiment that reversed direction and pushed stocks successfully higher in a broad rally.
Economic data and corporate results in the fourth quarter earnings season (see page 3 for details) have so far this year shown enough strength (though somewhat modest and mixed) to have provided a rebound in stock prices so broad and powerful that it triggers a sense of déjà vu.
Too many times to count since the market’s recovery process began in March of 2009 through the end of the fourth quarter of last year has the great bull market (GBM) appeared to be up against the ropes pummeled by bears, shorts and skeptics only to find the GBM supported by a posse of good fundamentals that allow it to regain its strength. Repeatedly an unexpected positive outcome, a ray of hope, an utterance in the halls of power, or a brace of better than expected data tied to economic or corporate news flow has helped offset negative events and negative projection and become a hallmark of the current bull market.
It has happened with such frequency over the past ten years (see table on page 8 of this report) to warrant what has become known among investors as “another buy the dip opportunity”. Consider the dip-buying moments in the rearview mirror in 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 and 2018.
Since March 2009 the market has found resilience not so much in animal spirits or irrational exuberance but rather that the trajectory of stock prices has been supported by enough positives in economic and corporate fundamentals…
It’s not that each of those years ended in a positive return for the S&P 500 (see the table on page 8 of this report) but rather that since March 2009 the market has found resilience not so much in animal spirits or irrational exuberance but rather that the trajectory of stock prices has been supported by enough positives in economic and corporate fundamentals to overcome challenges that have seemed unsurmountable at times.
There’s never an “all clear” signal sounded
While the GBM appears to have once again survived a run-in with the bears and shown once again a proclivity for climbing the proverbial “Wall of Worry” we believe investors should leave the party hats in the box, stay focused on their goals and objectives and keep expectations right-sized avoiding complacency.
Markets stateside and abroad have surged early in 2019 as fears that the Federal Reserve was hell bent on making a policy mistake dissipated; prospects for a resolution to the trade war between the US and China improved and the price of oil rebounded. While the improvement to sentiment feels palpable, the market’s sensitivity to the Fed’s process of normalization will likely persist and could rattle the markets as the year progresses, particularly if “things get better.”
While we believe a deal between the US and China in principal is possible before the end of this quarter, the proverbial devil will likely be in the details and arriving at a signed, sealed, and delivered point in time will likely take longer than many expect.
Patience will be required and even likely tested before a myriad of hurdles are cleared by both sides and a deal is signed. As to the price of oil and other commodities that have shown some strength? They will likely fluctuate as investors model expectations of demand and markets discount the effect across the commodity complex of a resolution to the trade war.
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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