Bear market might not be finished with its hibernation
Adviser asserts negative ‘chatter’ just distractionJanuary 31st, 2019
We’re dealing with a number of issues, including computer generated algorithms, bearish rhetoric, political discourse, and of course trade issues—primarily with China.
Computer generated algorithms kick in when various trend lines are broken causing computer programs to sell stock automatically without regard to underlying fundamentals.
Granted, those computerized trading platforms can kick in to the upside as well. However, when we are looking to explain the December selloff, computerized trading is at the top of the list.
Bearish rhetoric comes from concerns that the market simply can’t continue its bull run, or trade issues will cause a global slowdown and slow the U.S. economy, or political discourse (Democrat vs. Republican) may cause stagnation, and the Federal Reserve may further damage a vulnerable albeit strong U.S. economy by raising rates further.
These concerns, although valid, belie what I think is a strong U.S. economy, which boasts strong employment, growing corporate revenues, earnings, dividends, stock buybacks, and a number of large expansion plans. The driving force behind the negative rhetoric, whatever the motivation, contradicts the Federal Reserve’s most recent action and forecast.
The strength of our economy should be able to overcome these short-term concerns. I believe that 2019 earnings announcements and resolution of the short-term issues should reduce the bearish forecast chatter.
The China deal will happen sooner than later. The Federal Reserve will moderate its tightening due to economic realities and perhaps pressure from the administration.
Political discourse is much more difficult to solve. The divide between the two parties has grown to epic proportions. The best we can hope for is a two-year stagnation of any meaningful legislation, although I do hold out hope that we will get an infrastructure bill passed that both the Congress and president want. This certainly would act as another stimulus to further grow the U.S. economy.
I think negative sentiment will turn out to be a distraction or an aberration in a continuation of this bull market rally.
In the meantime, I believe that all of these concerns have created the buying opportunities we have been waiting for. I remain optimistic for 2019 and beyond.
My narrative remains the same: Financials, commodities, pharmaceuticals and a select number of special situations (consumer staples) remain my preferred sectors. I remain focused on value investing with a preference toward high-dividend-paying equities.
Ron Benzel is vice president of Spokane-based investment broker and advisory company Vorpahl Wing Securities Inc. He can be reached at email@example.com.