Professional Money Managers Prepare for 2019 Rally
$DIA, $SPY, $QQQ, $RUTX, $VXX, $USD
Bond and stock markets from the US to emerging markets all on pace to lose money this year, investors have not seen this much Red on their screens since Y 1972, the last time no asset class returned at least 5%.
Yet professional money managers are finding things to like despite the recent market volatility.
As they start to position their portfolios for Y 2019, fund managers say they are looking at sectors that could snap back next year thanks to a combination of more attractive valuations and a decline in the USD.
Such a rally in both fixed income and equities markets is not unprecedented.
A 20% decliner in the value of the USD drove the S&P 500 up nearly 38% in Y 1995, while the US bond market returned nearly 17% the same year following 1 of the worst fixed-income Bear markets in memory.
If you look out at the broader picture, a lot of things are going right. It is easy to make a Bull case because the economy is humming along just fine, but the market is nervous because the loud negatives headlines and no one likes the unknown.
Part of the yield curve inverted this week when yields on 5- yr T-Notes dropped below those on both the 2- and 3-yr securities, a signal that has preceded every US recession in recent memory by between 15 months and 2 years.
Yet the long delay between a yield curve inversion and a full recession can still be a profitable time to invest however.
We here at HeffX-LTN do not buy the thesis that the economy is slowing, but we do believe we could late in the cycle.
In the last 8 weeks or so investors have been getting fooled by the headlines and avoiding industry names that have excitement
As a result we have noted to increase long exposure to companies that have sold off, including battered chip makers, telecoms, and increased short position on defensive stocks which have benefited from the market volatility.
Further, increasing allocation to US large-cap stocks in anticipation that declining bond buying by the ECB and a resolution of US-China trade tensions will derail the rally in USD this year. Thus improving margins for US exporters.
A Reuters poll of 60 currency analysts that ended 5 December forecast that USD will be weaker Vs major peer currencies next year, with most of the declines coming in 2-H of Y 2019.
Friday, the major US stock market indexes finished at: DJIA -558.72 at 24388.95, NAS Comp -219.01 at 6969.25, S&P 500-62.87 at 2633.08
Volume: Trade on the NYSE came in at 1.1-B/shares exchanged
- NAS Comp +1.0% YTD
- DJIA -1.3% YTD
- S&P 500 -1.5% YTD
- Russell 2000 -5.7% YTD
HeffX-LTN’s overall outlook for the US major stock markets is overall Bearish in here.
Have a terrific weekend