Market Outlook for 2019

It’s just going to be a day away before we bit farewell to 2018. By tomorrow, there will be many news articles evaluating the market for the entire year. I believe no commentator will cheer market performance for 2018. It has been a rocky year and ended all in negative territories including US markets. Worst still some market indexes, including the Japanese Market index touched down the bearish territorial few days ago. Possibly investors who have the least loses are the happiest winners for 2018.

At the close of the year, investors will be looking for the turn of calendar year into 2019. One of the major factors that ruined 2018 market, the trade war between the US and China would still carry over into the new year. But it carries with a hope that disputes will be resolved within a designated period of three months, or six months if needed.   If it can be ever resolved successfully, global markets are expected to cheer up the bull run again by many analysts.

Trade War Extension

However, sensible investors have to be aware that, the mere resolution between these two economic giants does not necessarily translate into global economic revival. The US trade protectionism affects beyond China issue alone. Other trade barriers such as steel and aluminum, cars and others are still in effect. 

Even if trade war between the US and China is being resolved, investors by then have to observe the extent of harm the existing trade barriers have done to global economic system. If the effects are already there, it is much more difficult to undone it with just a few moment or months.

Most fundamentalist believers are still hanging to the hope that once this trade disputes between these two economies are settled, market will resume its bull run. Because they assert that current US economic data is still solid and strong. On the other hand, would these solid data persist until then? It’s up to everyone’s guess for now.

Corporate Earnings Report

On the other hand, 2017 was a strong market run up year as markets were pricing in corporate tax cut President Trump is going to implement in 2018. When it comes to the actual year in 2018, corporate earnings reports were as beautifully strong as expected because of the government tax retention boosted most corporate earning bottom lines.

But market indexes did not run up but went down instead in some cases. Ever since then, analysts have been predicting that corporate earnings report in 2019 could probably unable to beat previous year.  If this is true, we could expect market indexes travel for south bound.

(Chart A) Rehman Brothers wasn’t the cause of Market down turn in 2008, but rather a result or casualty of market down turn at that time.

Many global economic organizations such like IMF have been predicting that global economic is going to slow down in 2019.  If economic activities are going to slow down, reaction of market index does not just stay steady proportionately, but goes down. This is the ironic fact of the demanding nature of stock market pricing behavior.  If market direction is going down south, it will pose a real test and challenge to the global economic system. If there is any crack found in the global economic system, black swan event will inevitably appear just like what happened to Rehman Brothers event in 2008. 

Rehman Brothers event wasn’t a cause of the economic down turn for 2008 as it was perceived to be most of the time. But it was rather a result, or a casualty of the market down turn that time. A detail analysis of Chart A above will tell us that Rehman Brother bankruptcy took place in September 15th 2008 after market went down about 22% bearishly from its previous height on October 12th 2007. And the Black Swan (one-day market big drop) appeared in September 26th.  

From this analysis, chartist would have alerted the coming catastrophe.  But the fundamentalist could have stubbornly hold on to the market, because economic data were all sounded solid and strong at that time.

Positive Outlook Position

Nevertheless, the above hypothesis could be wrong. Market for 2019 could possibly turn out to be a profitable year for investors. This eventuality has to take on the hypothesis that the current trade war the US initiated has minimum or no critical impact to global economy based on numerical calculation.  US and China trade dispute will eventually resolve successfully regardless of how difficult it is. And current market down turn is just temporarily and it’s very healthy. It’s just a pullback in order to position for greater new heights until next euphoria in 2019 or 2020.

While either one of the above scenario could be right, but it is up to the personal belief system of every investor to decide which side you want to stay for your outlook for 2019. If you are on the first outlook, you would be better stay away from the market for the time being. If you are still positive about the market future in 2019, especially banking on fundamental principles, you rather keep your portfolio intact.  But watch for clues of the black swan appearance if it ever happens.  

Keep watch over the market for 2019, it’s going to be an exciting year nevertheless.

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RISK WARNINGS

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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