Investors Were Looking Forward To A Traditional Santa Claus Rally; But, All They Got Was A Lump Of Coal; What Should Investors Do Now? And, What Are Some Keys To The Next Rally
It’s anything but delightful for investors this December, unless you are a short-seller, had already moved to cash, or had placed a bet on gold. I, unfortunately like most of you no doubt, was 0 out of 3 on those. As Ben Levishon wrote in this weekend’s (Dec. 24, 2018) Barron’s, “Market Gets Mauled By December Selloff,” “Santa’s sleigh is usually pulled by Reindeer; this year, it looks as if it will be pulled by a team of bears.”
Indeed, in what is historically and traditionally the best month to be invested in stocks, U.S. equities instead, had their worst week in a decade; and the worst December on record since the Great Depression/December of 1931. The NASDAQ lost 8.4 percent last week, to close at 6,333 points. Michael Wursthorn noted in this weekend’s (Dec. 22/23) Wall Street Journal (WSJ), “the intensifying selloff since August has erased $1.2 trillion in market value from the likes of FaceBook, Amazon.com, Apple, Netflix, Google parent Alphabet, and Microsoft, leaving the stock market without a clear leader.” Meanwhile, the DOW dropped 6.9 percent last week, to close at 22,445 points; while the S&P 500 was lower by 7.1 percent, to close at 2.416 points.
For the year, the DOW is down 9.2 percent; while the S&P 500 is off 9.6 percent; and, the tech-heavy NASDAQ is down by 8.6 percent. But, the damage done — both financially and psychologically to investors — is much greater. And, when considering where the indices are sitting compared to their all-time highs — the damage comes into clearer focus. The DOW is down 16 percent from its all-time highs, while the S&P 500 is down 18 percent; and, the NASDAQ has entered bear market territory, down just a tenth of s percent below 22 percent.
And, with this kind of selloff and damage, it is not surprising that the recession Cassandra’s are coming out of the woodwork. Jason Pride, Chief Investment Officer of Private Wealth at Glenmede, “puts the chances of a [an economic] slowdown [in 2019] at about 35 percent; and, while that means there’s a 65 percent chance that a slowdown is avoided, those are “not gamblers odds,” Mr. Pride told Barron’s. “What’s more, when the odds of a [an economic] slump are that high, it signals a high-level of fragility in the economy, which means that an accident — whether from the Fed, the White House, or something we haven’t even imagined yet — could “come out of left field and knock this economy into recession,” Mr. Pride warned.
As the 18th century British nobleman, and member of the Rothschild banking family once said, “the time to buy is when there is blood in the streets.” So, with all this fear, selling, and bad news, a headline from this weekend’s (Dec. 24, 2018) Investor’s Business Daily (IBD), “Bear Market Territory Doesn’t Call For Hibernation,” is not surprising. Justin Neilson wrote, “looking to past bear markets,” can be instructive as to what investors should do, or at least consider. “A look back in time can provide a road map for how to navigate the tumultuous terrain for beginners, or give you reminders of past lessons learned.”
Mr. Neilson writes that “our preferred signal that a bear market is turning toward an uptrend is a follow-through,” two-day rally, where stocks close at the high each of two consecutive days. And, these consecutive day highs should come on the back of high volume, which means there is conviction in the buying. Having said that, IBD/Mr. Neilson recommend that investors don’t pour all their cash in at once; but, instead, leverage in, in case the rally fizzles. That way, investors have more cash to put to work. And, as Mr. Neilson notes, the transition from a bear-market to a bull market can be swift and sharp. In the past, when we have moved from a bear to a bull market, Mr. Neilson reminds investors that after the past NASDAQ collapse at the height of the 2008 financial crisis — following a two-day rise on strong volume — the NASDAQ composite saw a 20 percent rise in just three months time. If you thought sleeping through it, or waiting for negative headlines to subside was the way to go, you were late to the party. The setups and opportunities unfolded rapidly in the early weeks, as they often do. Instead of disengaging, keep updated watch lists of stocks [you want to own] showing relative strength [in this selloff]. That prepares you for the next rally, whenever it comes.” RCP, fortunascorner.com