A very happy New Year to all!
Our market forecast for Q4/2018 was a great success and we met most goals for the indices as well as many individual stocks (some of these forecasts can be found in the Oct/Nov/Dec archives). In fact, SPY and QQQ exceeded our (bearish) forecast targets.
Here is my macro view on the S&P 500 for the first two quarters of 2019:
- On Dec 31, 2018, SPX and DOW closed below the 2018 Feb lows. This is uber bearish purely from a technical stand point.
- Markets might attempt multiple bounces but a sustained rally might be hard to come by, unless there is a satisfactory conclusion to the trade tariff battle with China.
- Over the next 2 quarters, despite bounces that are very likely, I expect the market trend to remain mostly bearish (I attach 80% probability to this). I do expect the GDP growth to start declining from Q2 of 2019 due to trade barriers and political upheavals, leading to more stock market upsets in 2019. While the numbers on the economy & jobs have been good so far, one should start paying close attention to the housing sector & the declining home prices besides the burgeoning trade deficits & Govt debt.
- For the bulls to gain back control and take the markets to new highs, they would need to push SPX above 2710 at the least. And that scenario right now is not looking pretty. So I would put the chances of a bull market for 2019 at only 20%.
Here is a chart representation of this macro-view:
More thoughts for 2019 as a whole (these are just some possibilities, NOT predictions):
1. Fed might raise rates once more or may not raise at all in 2019
2. Fed might start cutting rates in late 2019 and we might see at least 1 rate cut before the year ends.
3. GDP growth might start slowing down from Q2.
4. After some initial weakness, Dollar might gain some strength over all the currencies except the Yen. Yen to gain even more strength.
5. An extreme possibility is SPX and Gold reaching a “meeting point” as detailed below.
Gold and SPX:
Given below is my baseline thought for SPX and Gold in the event my fears about Q1 and Q2 come true and signs of a recession start appearing by Q2. I will need more inputs over the next 8-12 weeks to validate this thought and convert it into a “forecast”.
According to this baseline theory, there is a possibility that SPX (currently at 2485) and Gold (currently at 1278) could find a meeting point somewhere in the 1725 – 1925 zone.
Sounds impossible? Sounds unreal? Sounds ridiculous? Yes to all. That is why I call it as an “extreme possibility”.
But let me ask: in April 2008 when SPX was at 1400, how many of us expected it to tank to 660 by March 2009? And more recently, how many of us thought that SPX would crash below 2400 in December?
As far as Gold is concerned, it had lost its sheen over the last few years thanks to the ZIRP + low interest rate policy, continued bullishness in stocks and the crypto boom. With the crypto boom fizzling out and stocks losing heavily, I feel the time has come for Gold to re-acquire its lost sheen. And if and when market fear turns into panic, Gold could sprint at double the pace. My target for Gold in 2019 is 1500 – 1550 (with a lack-luster GDP but no recession) and in the event we get a confirmation of recessionary signals, then another $200 shouldn’t be a stretch for Gold.
Please feel free to comment / share. Thank you!