Will Europe drag the US into recession?

European growth peaked at the end of 2017 and has been slowing ever since. Despite the ECB saying there is no recession in Europe, there is mounting evidence that Europe is entering a recession. Germany, which is often seen as the engine of the Eurozone, saw its GDP contract in the 3rd quarter and its manufacturing PMI fell below 50 in January. Italy has waived the white flag and is already in recession with the European Commission forecasting just 0.2 percent growth for 2019. The ECB just stopped its asset purchase program in December and now may have to try to stimulate again.

Houston, We Have an Earnings Problem

We are currently in the thick of earnings season as companies are reporting their quarter ending December 31st. Expectations are for S&P 500 earnings growth of over 20% which is an extremely strong number especially considering that the previous year grew a healthy 12%. However, lapping that type of growth is going to be a challenge, and forecasts are being revised down quickly for the first half of 2019. That is why we believe there is a growing likelihood of a slight earnings recession occurring in 2019.

The Central Banking Problem: Quantitative Tightening

The stock market has rallied nicely to start 2019 but we think there is a big problem. The major central banks, the Fed, ECB and BoJ, have pumped up asset prices since 2008 with a massive liquidity injection of $11 trillion. They kept interest rates at ridiculously low levels on the short and long end of the curve and investors were forced into risk assets. This grand experiment is known as quantitative easing. Now is the more difficult part called quantitative tightening, the central bankers are trying to normalize policy.

Wall Street strategists bullish for 2019

This is one of my favorite posts to write every year as we get to look back on Wall Street predictions and see how they panned out. We have done this in 2014, 2015, 2016, 2017 and 2018 so it is a tradition to see which strategists did well and which missed the mark.

Last year, the strategists predicted a bull market for 2018 with an average target of +6%, 2850, for the S&P 500. Those predictions looked pretty good heading into the fourth quarter, but after a sharp decline, all of them badly missed the mark as the S&P 500 suffered through a terrible stretch and hit a year to date low of 2346 on Christmas Eve. The best of the best was Citibank's Tobias Levkovich and UBS's Ben Laidler who both predicted a slightly down year. Now let's take a look at their thoughts on 2019...

Leadership tries to instill calm but instead sparks fear

Since the end of September, the market has been shaken by the China trade dispute, Fed rate hikes and a government shutdown. On October 31st, I wrote "Is the Fed triggering the next bear market?" and Runnymede began taking some risk off the table for client accounts. We believe this is prudent given that we are in the 2nd longest economic expansion in history. While economic data hasn't shown signs of a recession as of yet, growth has certainly slowed and the government has less ammunition with its ballooning budget deficit. With stock market risks rising, the current administration is looking for answers and trying to instill calm, but it has had the opposite effect.

Ballooning US debt poses huge risks ahead

Today, Blackrock's CEO Larry Fink warned investors that the US is heading towards a "supply problem" as the widening budget deficit, expected to top $1 trillion annually starting in 2019, requires more borrowing. This is an issue that investors have never seen before. Typically government spending is restrained at the end of an economic expansion; however, this administration is stepping on the accelerator with neither party emphasizing fiscal responsibility. This could pose a huge problem if a recession hits over the next couple of years.

Is the Fed triggering the next bear market?

October has been a rough month for the stock market with the recent downdraft wiping out index gains for the entire year. The deterioration has been rapid despite a strong earnings season and overall S&P earnings increasing by nearly 30 percent. It is highly unusual for earnings and stock prices to diverge to this extent. Something is obviously deeply troubling investors, and we wonder if the Fed is triggering the start to the next bear market?

Andy Wang on Reuters TV: Earnings and elections will power stocks higher

Last Friday, October 19th, Runnymede managing partner Andy Wang returned to The Reuters Building in Times Square to chat with news anchor Fred Katayama. In this segment, Fred asked Andy about a variety of subjects including market volatility, midterm elections, and sector rotation. Watch the segment below.

Should you buy or sell the spike in fear?

The Dow dropped 1300 points in a couple of days and the CNBC fear machine cranked into high gear. Even Fox Business News got into the action with the headline grabber "Biggest market crash in our lifetime coming - economist Harry Dent." Of course if you google "Harry Dent crash," he makes the same call every year so it is meaningless. The real question is: should you buy or sell the fear? The answer: it depends.

Should you expect a US recession in 2019?

This week two prominent market veterans warned that the US could slip into recession next year. Mark Yusko of Morgan Creek Capital says that the chance is "close to 100%," while Dennis Gartman puts the probability at 50%. According to Gartman the cause will be the Fed tightening. Yusko blames trade tariffs as he said, "The trade rhetoric is one of the dumbest things in the history of all administrations and it will cause a global recession."

IMPORTANT DISCLOSURE INFORMATION 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Search Website

Annuity Review Database

Follow Our Podcast


Google Podcasts
Apple Podcasts
spotify

Recent Posts