Everything is in place for finding opportunities in December’s stock market:
- Underinvested (in stocks) investors who rode the “recession-is-coming” train too long
- Overinvested (in bonds) investors who are uncertain what to do following the Fed’s final interest rate cut
- Widespread belief of “Okay, no recession, but the 2020 economy will grow slowly, and the stock market will deliver little”
- A too-soon interest in value stocks (in the hope that undervaluation will outperform in the growth stock market)
- A broad range of individual stock performance for 2019, meaning lively “loss harvesting” selling in December that creates opportunities for buyers
- Finally, the shift in worrywarts’ warnings from “a recession is coming!” to “the financial system (extreme borrowing and overleveraging) is out of control!” Once again, such warnings, like those about a recession, have some supporting data, but are too early
Today’s headlines reflect the widespread nervous attitude
Very important: Regard broad agreement of a belief and investment theme as similar to a popular fad. In investing, such popularity of thought is already reflected in stock prices. Therefore, we may confidently consider the contrarian approach. And, today, that means we can expect 2020’s economic growth and stock market returns will be better than expected. Already, that evaluation is being supported by recent data, particularly this quarter’s earnings reports, October’s economic reports and consumers (sentiment and retail sales up).
Today’s articles about 2020’s stock market outlook:
- The New York Times (November 30) – “The Stock Market’s Dangers Are Easier to See Now”
- The Wall Street Journal (November 29) – “Wall Street’s 2020 Prediction: The Stock Market Will Have a So-So Year – Many firms predict single-digit returns after a robust 2019 rally”
- Bloomberg.com (November 27) – “RBC Sees Stock Turbulence Ahead as S&P 500 Pushes Toward 3,350 – Predicts S&P 500 gains will slow with near-term pullback risk – Joins others taming outlook amid political, growth uncertainty”
- Barron’s (November 23) – “A Bear Market Could Still Hit Next Year. Here’s How to Prepare.”
- CNBC (November 23) – “Wall Street’s stock forecasters see just a 5% gain in 2020”
- USA Today (November 15) – “More than half of wealthy investors brace for a stock market sell-off, more turbulence in 2020”
The one report to focus on
In the midst of popular belief articles, there is often an outlier that describes the winning contrarian theme. This time, it is Time that delivers the wisdom.
- Time (November 28) – “The U.S. Economy Is Looking Durable Despite Risks From the Trade War”
The article reviews the key areas, putting them into proper perspective to show that there are desirable positives offering good prospects.
The bottom line
December offers the potential for buying value stocks at good prices, driven by both “loss harvesting” and the prevalent weak views about 2020 prospects. Looking at the calendar, we have:
- Three full weeks of pre-Christmas and pre-Hanukkah stock market trading
- The Christmas and Hanukkah holiday week, with regular stock trading on Monday, Thursday and Friday along with a shortened trading day on Tuesday
- The New Year holiday week, with no trading on Wednesday (January 1)
Those last two, chopped-up weeks often see smaller trading volume, but they can offer special values. So, if you can, check out what is happening on those trading days or make use of some limit buy orders.
The goal is to have a desirable stock portfolio heading into 2020 because economic growth and a bull market are coming.