(Drivebycuriosity) - The begin of a new year is the time to look back and ahead as well. 2018 was very disappointing. The S&P 500, the gauge for the US stock market, lost 6% last year, the worst performance since 2008. The bull market, which started in spring 2019, barely survived. Last Wednesday morning the S&P 500 dropped on an intra-day low just 2 points above bear market territory, but a late rally saved the bull. According to Bloomberg this had happened twice before, in 1998 and again in 2011.
The S&P 500 climbed to a new all-time high in September but then the sentiment got spoiled by a lot of noise & speculation caused by Trump`s China trade war, rising interest rates, slowing economies in Europe & China and Brexit, US government shutdown and there was a lot talk about a coming recession. In the recent weeks noise & speculation ruled. Falling stock prices created fear and induced more people to sell. As usual the crowd of fund managers and other so-called
professional followed blindly some skeptic bellwethers. Professional portfolio managers, including administrators of large
funds, usually act as a herd. When their bros are selling they are
selling too which amplifies the stock market movements. The slide animated many fund managers - and others - to take
profits,
apparently this encouraged short sellers to
amplify their bets against the stock market. So the slide accelerated and caused more selling - a typical herd behavior. The falling stock prices also triggered
some computer programs to sell, aggravating the snowball effect.
Last year´s stock market performance reminds me of 2011when the S&P 500 suffered a similar slide also caused by pessimistic sentiment and recession calls. I believe that the stock market rally will restart this year as it did in 2012. The recession, which is already priced into the stock prices, at least partly, won`t happen. The US economy is still solid, jobless rates & weekly jobless claims
are close to all-time lows and company earnings are growing more than
20% annually. Companies are also benefiting from a new industrial
revolution: Advances in
Internet, mobile computing, 3-d-printing, robotics, nano- &
biotechnology and other technologies are reducing costs, raising
efficiency
and creating new markets. And oil got much cheaper in the recent months - minus 40% since
October - and created a new tailwind for the global economy. I assume
that the global economy will re-accelerate this year, thanks to cheaper
oil and the still reduced US taxes, disappointing the pessimists, and the
rally will restart as it did in 2012. The pessimists will be
disappointed again.
I wish you a happy New Year!
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