Yahoo Finance Is 2019 a strong year for Aussie stocks?
Santa came late last year and he had a lot to make up for with that big sell off on Christmas Eve, making the festive fare harder to enjoy for yours truly. But at least there was the offsetting huge 1000-point plus rebound on Boxing Day! Maybe my prayers were answered.
One of the triggers for the US stock rebound that helped our market trend higher was news from Amazon that it had a record-breaking holiday season both in the USA and worldwide. The AFR reported that “…it was enough to send the S&P 500’s retail index rising by 7.4 per cent and Amazon’s own shares soaring by 9.5 per cent.”
Ridiculous October dumping
That was one trigger for the stock price surge but another trigger was captured in a fact I gleaned from US business TV. The ridiculous dumping of shares since October was driven by fears created by market-insensitive political leaders, like Donald Trump, around the world, which led to the Price/Earnings ratio for the US stock market to drop to a low 13 reading. Smarties looked at that number, which suggested US corporate earnings would increase for the next quarter by only 0% and knew the sell off had gone too far.
In contrast, the consensus of company profit experts was saying the rise will be 9%! What we are witnessing nowadays is a man-versus-machine madness and mayhem market situation that explains the wild swings both down and up. And it creates money-making opportunities for the courageous market player but it takes guts right now.
The impact of AI
Computer trading, algorithms and artificial intelligence have changed markets and we now have to get used to it. Thankfully, fundamentals should prevail and I’m hoping over 2019 these prove to be better than was expected after Christmas, when the US stock market crashed into bear market territory.
What helped the post Christmas rally?
The recent rally in stocks was helped by the oversold market by Christmas Eve, end-of -year tax loss selling in the US had petered out, pension funds had done their end-of-year, stock reallocations and, of course, short-covering, which that 1000-point plus surge of stocks in the Dow Jones index showed on Boxing Day. That was the biggest one-day gain ever!
Right now, I’m not sure the worst is behind us but I do like the current signs. I need to see a few more days of buyers outnumbering sellers and the US job numbers will be important. That said, there’s plenty of history to say a big sell off of stocks can be good for the market in the year after but history shows there’s a fair bit of volatility in the early days before an uptrend for shares takes over.
“Right now, I’m not sure the worst is behind us but I do like the current signs.”
And importantly, a near bear market does not necessarily lead to a recession soon after. There have been 20% falls in US stocks 13 times since 1945 and five times there was no recession within two years. The other eight times the US was in or on the verge of a recession and current economic analysis does not imply any such thing.
CNBC says after such a big market fall, the average market fall in the following year is 8%, while the average rise is 14%. The worst bear market fall was 52% in 2007-08, while the “nicest” was 21% in 1956-57. This is analysis the White House has to contemplate. The same goes for local share-buyers, because if it turns negative on Wall Street over 2019, our market will find it hard to ignore any persistent downtrend.
Will stocks rise this year?
I’d love to say I’m super confident about stocks rising this year but the Trump trade war, the Hayne recommendations from the Royal Commission into the finance industry and the election will all be curve balls that could easily cause stock players to get struck out!
It’s not 50:50. I’d say the odds that we could have a good year are 51:49. But these odds will improve if Donald Trump wraps up an acceptable trade deal with the Chinese and the US Fed resists raising interest rates.
The fears of 2018 about 2019 might be overdone. That’s our best hope for a better stock market this year.
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.
Now read: Australia only has 22 days of fuel stored: Here’s what that means
Now read: Australians are owed $6.2 billion from their friends
