Is All Hope Lost for 2019?
Welcome to the holiday correction, where a measly quarter-point rate hike just crushed the stock market.
Fed Chairman Jerome Powell did exactly what all the very smart analysts expected yesterday. But as we warned earlier this week, rate hikes and market slumps generally don’t mix.
Stocks wobbled after the Fed released its statement at 2 p.m. Then the selling started in earnest as Powell took the mic. Despite suggesting the Fed might be less aggressive raising rates next year, investors decided Powell isn’t as dovish as they would prefer given the current market environment.
That’s when the big waves of selling began. The Dow shed nearly 700 points from its 2 p.m. peak to close lower by 1.5%. The S&P 500 also dropped 1.5%, while the Nasdaq Composite cratered more than 2%.
“The S&P 500 has now fallen for a record 7th straight Fed Day, which is a streak that began when Powell became Chair,” Bespoke Investment Group notes. “Today’s 1.54% decline for the S&P 500 was the 19th time the index fell more than 1% on a Fed Day, and it was the worst Fed Day since September 21st, 2011 when the index fell 2.94%.”
Down we go.
After the hike, we anxiously await Trump’s next move.
You might have guessed that Trump’s not too happy with Jay Powell. It’s rumored that Trump is glued to the stock market’s every move right now. So it’s no surprise he wants the Fed to ease off the rate hikes until things cool off. He even tweeted a not-so-subtle hint to the Fed to back off the hikes.
But the president has been silent on the market and Powell since yesterday’s hike. This morning, he’s pivoting to tweets about the border wall and his decision to pull out of Syria. Maybe he hasn’t peeked at his brokerage account just yet.
As the stock market craters, I’m still reading through your 2019 predictions.
Yesterday, I revealed the details of my Jekyll and Hyde market prediction.
We’re already careening into a Mr. Hyde market before the ball drops, complete with wild swings and bear market action as trade war fears and other political shenanigans dominate the news cycle.
Scary headlines about the trade war, rising rates, a stalling housing market, and an economic slowdown will continue into next year. Investors will expect the worst and an uncooperative market will stoke these fears.
But when the worst-case scenarios don’t materialize and the last seller turns out the lights, stocks will bottom and a new rally will begin, leading to a strong fourth-quarter performance.
That’s my best guess at a market roadmap for 2019. So how do you feel the market heading into the New Year?
Let’s find out:
“You put forward a very hopeful prediction for 2019,” one reader says. “However, I believe you are wrong… I believe the stock market in 2019 will look a lot like the stock market in 2008. Because the higher debt levels are higher today than in 2008, this impending recession and resulting Bear Market may well be worse than 2008 – early 2009.”
Yeesh. Let’s try to find someone a little more optimistic…
“I have been through the dot-com bomb,” another reader says. “It shocked me but I averaged down thru it all and made money back faster than most. In 2008, I had a better mixture of stocks and bonds. We made it through fairly well with a few losers. I am looking forward to using my cash reserves to pick up stocks that were way overvalued.”
I like this approach. It’s tough to keep a level head when the market’s tanking, but stockpiling cash and buying while the herd is fearful is a great way to pile up long-term gains.
“I would never have the audacity to second guess you,” another reader says.
GImmie a break.
For the record, I second-guess myself all the time. If you aren’t ready to change your mind at a moment’s notice, the market will eat you alive.