Outlook 2019: Are the dog days over? Thirteen market observations for what could be bounce-back 2019
One of my favourite guitar licks is the opening twenty seconds of Long Cool Woman by the Hollies. It’s truly magical. Unfortunately, I find the rest of the song to be a letdown.
2018 was a Long Cool Woman year. In January, the world economy was growing in harmony. We were coming off a year when stocks were up and volatility was non-existent. Credit was plentiful, Bitcoin was the future, a new cannabis industry was emerging and generally, investors were gaining confidence. But like the song, it was all downhill from there.
As we launch into 2019, we’re at the other end of the spectrum. Markets are gyrating again and mostly in a downward direction. Debt markets are nervous, with default premiums widening and fewer bidders at the table. And investors’ willingness to speculate has diminished. To use Warren Buffett’s measure, we moved from greed to fear.
I realize that none of this sounds very good, but for an investor, they’re all reasons for optimism.
Good markets are rooted in nervousness, not euphoria. Stocks have more upside when their prices are on sale. And strong companies gain ground when capital is tight and competitors are faltering.
Personally, I’m more positive than I’ve been in a few years. Our fund managers are finding stocks to buy again and from current levels, returns should be good over the next five years. I say five years because nobody knows where markets are going in the short term. Stocks could turn around tomorrow or put us through the grinder for another year or two.
But while I don’t believe in forecasting the market, I’m willing to offer my lucky 13 things that will definitely maybe happen in 2019.
1. Energy stocks will do better than they did in 2018. The gloomy outlook for oil and gas prices, as well as pipeline limitations, appears to be factored into the stocks and more importantly, they can’t do much worse.
2. In general, areas that are starved for capital will garner more attention. In cyclical industries like oil service, refining, mining and fertilizer, pricing starts to recover after periods of underinvestment.
3. Conversely, cracks will start to show in some of the industries and asset classes that have had capital pouring into them including shared office space, private loans, private equity and Canadian cannabis.
4. Speaking of cannabis, pot stocks will start to sort themselves out in 2019 based on revenues and profits as opposed to hype and promises.
5. The existential search for how to value Bitcoin, however, will go unrequited.
6. Trade won’t be as bad as we thought. Globalization will muddle through despite President Trump’s efforts to the contrary.
7. The expression ‘debt fatigue’ will enter the lexicon as consumers, corporations and governments are forced to stop their borrowing binge.
8. On that note, investors will wake up to the fact that Canadian banks’ most profitable customers are maxed out. Consumers are up to their eyeballs in debt.
9. Tighter credit markets will slow the consolidation trend in most industries although the Canadian banks will take further steps to owning everything.
10. If markets stay weak, we’ll also see a slowdown in share buybacks. Corporations tend to buy aggressively in good times and pull in their horns when their stock prices drop. In other words, they ‘buy high’ and ‘hesitate when low.’
11. The Consumer Price Index will trend higher on wage pressures. Meanwhile, economists will continue to describe inflation as ‘benign.’
12. The securities commissions will lead the charge with investor-friendly initiatives while the wealth management industry will fight tooth and nail to protect the status quo.
13. And the disruption hotspot in 2019 will be transportation. Alphabet’s launch of a driverless car sharing service in Phoenix will wake people up to the fact that the future is not decades away, it’s arrived.
Like every year, 2019 will be a mix of good and bad, but I’m not looking for it to be another Long Cool Woman. I’m hoping for a tune that starts slow and soars to the finish. Perhaps Florence + The Machine’s Dog Days Are Over.
Tom Bradley is President of Steadyhand Investment Funds, a company that offers individual investors low-fee investment funds and clear-cut advice. He can be reached at [email protected]
Published at Thu, 27 Dec 2018 12:48:48 +0000