The job market appears to be bottoming, but is not yet turning bad, and could still potentially bounce back to strength. We haven't gotten to that point quite yet. What works well on the micro scale for individual companies eventually gives most of them trouble on the macro scale. However, as that labor force is trimmed, there are fewer people with money able to buy things from those companies. This is classic late-cycle stuff, and the way that companies usually respond to this is by trimming their labor force, trying to squeeze extra profits out of the situation by boosting productivity. Labor costs are rising 2019 saw the highest level of year-over-year hourly wage increases during this business cycle. Money spent on buybacks peaked in 2018, declined in 2019, and is likely in my view to decline again in 2020. markets in the coming year?Ĭompanies are already leveraged with record amounts of corporate debt relative to GDP, thanks to low interest rates that have allowed them to service that high level of debt. Which domestic/global issue is most likely to adversely affect U.S. Are you a buy-and-hold investor that ignores market conditions, or are you a tactical allocator that changes risk levels based on valuations, sentiment, and market conditions? Rather than try to figure that question out in real time, try to plan ahead and know what you will do or not do. It's important for investors to define their strategy ahead of time. Volatility is what gives investors opportunities to rebalance portfolios into cheaper assets. The optimistic view is that this would likely create a decent buying opportunity in high-quality stocks for contrarian and value-minded investors. If unemployment ticks up and earnings disappoint, which has a moderately high probability this year, stocks are likely to be in for a rough time this year or next, from current price levels. That's not to say that they will end the decade lower, but simply that I don't expect the 2020's decade to be nearly as good as the 2010s decade, and likely below the S&P 500's historical annualized rate of inflation-adjusted returns.įor the nearer term, I am watching business cycle indicators. stocks in inflation-adjusted terms, and relatively neutral on them in nominal terms. Over the next decade, I am relatively bearish on U.S. Over the course of the full walk from point A and point B, the dog winds up in the same place as the person, but its path to get there is a lot more erratic than the person's more orderly path.Ĭhart Source: J.P. It is always zigging and zagging around the person within the limit of the leash length. Other times it is distracted by something behind, trying to tug backwards. Sometimes it is tugging ahead on the leash, trying to go faster. The dog, on the other hand, goes all over the place. Mostly, it's an orderly walk from point A to point B. The person walks in a relatively straight line, with periods of faster walking, slower walking, stops, and maybe some brief backwards movement if she drops something and go back to pick it up. Josh Brown, the CEO of Ritholtz Wealth Management and CNBC contributor, once compared the relationship between the economy and the stock market to a person walking a dog on a leash. The question going into 2020 is whether earnings will start to catch up to stock prices, or if earnings will disappoint, potentially leading stock prices to fall back down or stagnate sideways for a time. The full year 2019 was about major valuation expansion on top of flat earnings, which along with low interest rates has led to historically high equity valuations.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |