As volatile as the stock market has been so far this year, as we approach the end, it appears we may be in for one last economic surge. Michael Wilson, Chief U.S. Strategist with Morgan Stanley, is suggesting that accommodative central banks, providing fresh liquidity to already buoyant markets, combined with easing Brexit uncertainty, and apparent progress toward a meaningful détente in China-U.S. trade relations could spark a last hour rally to this long-in-the-tooth bull market. Despite a plethora of negative market forces this year, the S&P has gained 27.2% for the year, the DJIA is up 21%, and NASDAQ is up 33% according to FactSet data. That’s the good news. However, Wilson closed the announcement with the fact that “The percentage of S&P 1500 companies with positive forward EPS growth has deteriorated meaningfully since 2018…Further, the current level of this measure is worse than it was during the 2015-2016 manufacturing recession, a trend driven mainly by smaller capitalization companies which are struggling with higher labor costs.”
So while the first quarter of 2020 may benefit from the trifecta of market-supporting catalysts just described, it is critically important to examine each of those forces and the potential longevity of each. The first thing to realize is that in spite of this year’s Fed claim to reduce its balance sheet, the liquidity referred to will reach nearly $500 billion between now and the middle of January, ending any possibility of an overall reduction for the year. The Fed has kept the market going by continuing to issue “cheap money” and public companies have wasted no time borrowing that money to buy back company stock, thereby increasing stock prices and executive bonuses, but providing absolutely nothing beneficial to the long term success of the companies.
To the second point, now that Conservatives won a majority in the U.K.’s general election, trade negotiations could begin immediately following the January 31 deadline, but it could take until March to get the remaining 27 EU member states to agree to a formal negotiating mandate. Regardless of the timing, however, it’s just the first step in a very difficult process, with absolutely no guarantees. And finally, as far as the China trade agreement is concerned, the reality is that in the best-case scenario, we’ll begin 2020 where we began 2019 (minus .2% – .3% GDP) and we will not even have broached the primary reason for negotiations with China, stemming from cyber attacks and their unfair use of business practices related to technology.
When these realities are forced to take hold and combine with existing global and domestic, political and economic turbulence, the dollar, stock market, and economy, in general, are in a position to take a more massive beating than seen in 2008 and potentially in a far more immediate and precipitous manner. The level of blissful ignorance or unconcern by some investors supports dangerous market conditions. Those who prepare for the coming economic decline with defensive stocks and a good supply of gold and other physical precious metals, shall not only create a better opportunity to survive but can make huge profits from the scenario. Many analysts are calling for new highs in gold and silver’s reduced production and growing demand. A new high for silver means tripling its current value! Call the experts at American Bullion for professional assistance, at (800) 653-GOLD (4653), NOW!
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.