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An Early Year Update - What Recession?
February 20, 2019
Wow, it’s hard to believe that Christmas Eve was just thirty-eight trading days ago. After falling for weeks from the October high, the market dropped over 5% in a holiday shortened session. As I wrote early this year on January 9th, the market may prove sellers were wrong.
So far so good. In December, the market was supposedly sniffing out a recession. Now, not so much. So, it looks as though Christmas Eve was, in fact, the bottom and since then, the stock market has risen nearly non-stop.
As for where we stand now, we are watching six market factors: Interest Rates, Inflation, Fed, Investor Sentiment, Earnings, and Trade. Here’s how the Bull and Bear argument stacks up for each.
Today, most investors would check all six on the bullish list. We would check 5 out of 6 as investor sentiment is so strong, it is likely a contra-indicator at this time. Even so, 5 out of 6 is good. As for what has mattered most; it is number 3, an accommodative Fed (which was a big change from 2018).
As for the bearish case, numbers 1 through 3 could all trigger in unison, ironically, if the economy were to strengthen. This would, essentially, set the stage for the Fed to begin tightening again. Regarding earnings, Q1 looks to be good enough, so we’ll have to wait for Q2 new data. As for Trade, well, that’s anyone’s guess.
To sum things up, the bullish case is in and expectations are good. Who can’t be happy with the recovery so far? But keep in mind that the market has likely priced in this good news for now and may trade sideways for a while. We continue to be patient and keep our eyes on these factors.
Southbridge Advisors Investment Committee
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