Stocks 2019: The Big Picture

Stocks 2019: The Big Picture

$DIA, $SPY, $QQQ, $RUTX, $VXX

Stocks finished higher Monday, and wrapped up the month and year.

Buying conviction was reserved during the session with no news catalysts or economic data to drive investors, that until the last minute buyers came in to drive the indices to near session highs. 

The trading session is over and so is Y 2018 and the recent volatility that gripped the stock market.

The S&P 500 (+0.9%), DJIA (+1.2%), NAS Comp (+0.8%) pared yearly losses to 6.2%, 5.6%, 3.9%. The Russell 2000 (+0.8%) reduced its yearly loss to 12.2%.

The S&P 500 is off 6.2% in Y 2018 after peaking with a 10% YTD gainer in late September prior to the consolidation.

The Fed’s tightening and heightened uncertainty into Y 2019 have brought valuations on the S&P 500 to multi-year lows as investors anticipated slowing growth next year.

The extreme volatility of late increased expectations for a recession on the horizon as the current cycle enters its 10th year.

A lack of liquidity during holiday trade exacerbated recent swings, while there was little information about corporate developments.

That will change in January

So, expect to see lots of pre-announcements for Q-4 and early outlooks for Y 2019.

According to FactSet, S&P 500 EPS are expected to grow 20.6% this year. While tax cuts have provided tailwind, earnings before interest expense and tax (EBIT) are still expected to grow an impressive 11.6%.

Plus, Earnings for Q-4 are currently expected to grow by 12.5%.

Strange, but the focus turned to Y 2019 some months ago, and concerns over slowing growth have weighed on the market.

Earnings are expected to grow a still healthy 7.7% next year, but that is down from 9% in early November as Q-3 earnings season wound down.

Estimates for double-digit earnings growth have proven optimistic during this economic cycle. The last 2 years were the exception under the business-friendly Trump Administration, but the headlines elevated uncertainty and extra risk to forecasts for Y 2019.

In the coming weeks we will know what’s really happening when companies unveil their forecasts for next year.

Key retailers will provide an update on how the all-important Holiday season went starting on Thursday, 3 January and thereafter.

Christmas Holiday sales were really strong as the US consumer remaines strong.

MasterCard Spending Pulse reported Christmas Holiday sales up 4.9% earlier this week, with online sales up 18%.

For the Key retailers, focus will be on EPS as investors want to see companies profit from the favorable environment, as the shift to e-Commerce may have weighed on margins.

Corporate guidance picks up in earnest starting in the 2nd week of January when the extended Holiday shopping frame comes to an end. After the pre-announcements, earnings season will kick off during the 3rd week of January.

The Securities and Exchange Commission (SEC) now allows companies a larger window to file their annual reports relative to Quarterly updates. So, we will see pre-announcements throughout January and Q-4 earnings season run into March.

Companies will strive to keep investors abreast on how Y 2018 wrapped allowing management to report official numbers for the year while gaining additional clarity for Y 2019 going forward.

The Big Picture

Some see slowing growth overseas and here in the US, tighter monetary policy from the Fed, political instability and trade uncertainty, all of that headline junk weighed on stocks since late September.

Capital IQ’s data says that the S&P 500 trades at 15.8X 2018 earnings estimates, 14.8X earnings estimates for the next twelve months and 14.4X 2019 earnings estimates. That is near 5-year lows and a discount to the 30-year average of just under 17X.

The consumer discretionary sector is the most expensive sector at 18.5X forward 12-month earnings estimates, followed by consumer staples at 16.9X and utilities at 16.6X.

The financial sector is by far the cheapest relative to earnings at 10.5X, followed by energy at 13.6X and industrials at 13.7X. Expect them to lead the next leg of this Bull Market.

Trade, economic data and the Fed’s reaction to economic developments remain Key element in the outlook for Y 2019, investors will find clarity in the perspective from corporate america in the coming weeks and months.

The facts, not headline fears will drive the markets in Y 2019.

Monday, the major US stock market indexes finished at: DJIA +265.06 at 23327.46, NAS Comp +50.76 at 6635.29, S&P 500 +21.11 at 2506.81

Volume: Trade on the NYSE came in at 986-M/shares exchanged

  • NAS Comp -3.9% YTD
  • DJIA -5.6% YTD
  • S&P 500 -6.2% YTD
  • Russell 2000 -12.2% YTD

HeffX-LTN’s technical outlook for the major US stock market indexes for the year ending 31 December 2019 is Bearish to Neutral

The US stock market will be closed Tuesday, 1 January 2019

Have a Happy New Year!

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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