Atlas 2020 Market Report
January 1st, 2020
Market Commentary (Key items you need to know):
- 2020 Outlook by Ronald E. Lang
- Additional Market Commentary by Allen B. Lang
- Fun Links (always popular)
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Key items you need to know –
Welcome to 2020, the 3rd decade of the new century. When I think of 1990, it seems like it was 20 or so years ago, its now 30! Yes, it’s the don’t blink conversation again and it is amazing how fast time is truly going by. Is it technology, just the fast-paced world we live in or as you get older it just seems like time is going by faster. Perhaps you can make an argument for all three. Our 2020 Market Outlook will keep you focused on key things that should be important to your investing and portfolio management.
Everyone is looking at the 31% gain this year as a banner year, but was it really? Because we look at returns as in months, quarters and years, yes the 31% gain looks incredible. Let’s drill down a bit at the true, 2-year gain. The 4th Quarter of 2018 wiped out the entire year of gains and hit bottom on December 24th, 2018. The market was extremely oversold, sentiment was terrible and there was discussion of a possible Corporate Earnings recession going into 2019. All the pundits came out and hopped on that negative train and rode it into the beginning of 2019. The TRUE facts are the following; nothing changed! Meaning, we were having a terrific year until end of Q3 2018, the Fed Raised rates a quarter point and the market sold off, some of which could have been profit-taking and fund managers hitting their goals for the year-to-date. What happened on December 26th, 2018 after we hit bottom on December 24th? The market ran wildly to the upside because the market was too oversold and many quality names had pulled back to very attractive fundamental and technical levels that they had to buy. There was too much cash on the sidelines and as the market ran in 2019, the Fed than reduced rates and added fuel to the market. but much of that initial gain was just getting back to even before the Q4 2018 swoon which we did by April 2019.
Performance in 2018 – (-4.38%) / Performance in 2019 (+31.49%). Net 2-year gain 13.55%
The 2-year gain of 13.55% is what makes me feel comfortable discussing performance because of knee-jerk reactions in the market, this should be the focus. What should we expect in 2020?
2020 market performance should be positive the first six months of the year. After that truly depends on economic numbers, specifically employment and GDP figures along with Presidential Candidates on the Democrat side. As you know and we’ve noted many times in this newsletter series that we are NOT POLITICAL and never will be. We need to discuss this logically no matter which side you are on to make sure the opinions have substance behind them.
Like or dislike the current administration, the pro-economic and pro-business policies have done significantly more good than bad. Sure, they could have gone further, but the lobbyists as you know control many votes in the Congress and Senate. Remember, when you are reviewing consensus of the polls, don’t cherry pick one of them and the margin of error is within 3% +/- that means its a “pick-em”. The Presidential Election of 2016 should remind you of that.
If there is a far left wing Democrat that wins nomination and is within 3% of the President going into September and October, expect the markets to pull back significantly going into the November election.
If there is a centrist Democrat that wins the nomination and is within 3% of the President going into September and October, expect the markets to remain steady, but pull back going into the November election.
If there is a far left wing or a centrist Democrat that has a 4%+ consensus poll lead going into September and October, expect the markets to pull back significantly going into the November election.
Why would the markets pull back based upon what was stated above? The main reason is their rhetoric is to roll back the tax and pro-business policies that were recently put in place. The biggest component is the Corporate Tax Rate of 21% (from 35%) which has had the biggest impact to business, including small and medium-sized. It makes us more competitive compared to other countries and helps prevent corporate inversions which means US-based companies would purchase a company in Ireland (for example) and keep the US-based operations, but move the HQ on paper to Ireland that has a much more attractive corporate rate. Apple was criticized for this but their corporate structure was in place since the early 80’s. They were, as are many companies just following the laws and corporate guidelines. This is a bit of a ramble, but you need to understand the impact if the Corporate Tax rate is significantly raised if there is a Democrat that wins the White House and what they want to change.
You need to make up your own mind, both sides are trying to do good as they see it in their own eyes, but we need to look at facts and impact too.
OUTLOOK: BEYOND THE PRESIDENTIAL ELECTION
If Trump wins re-election, expect the market to run through end of the year, but the economics will catch up in 2021 and be in a recession or significant slowdown by June 2021.
if a Democrat wins the Presidential election, expect the markets to pull back significantly in major tax selling of assets. Look for a 30%-40% pullback in the markets going into 2021 and an economic recession by Q2 2021.
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Here are some additional factors to consider:
- Divided Country and Politics – With the Impeachment process still on-going and the President being very unpredictable and won’t simmer down the rhetoric, all this means is more division and divisiveness in our country. The negative tone is very disheartening and may have affects on our overall markets. Meaning, political vengeance going after heads of companies that have power over the narrative to the public. No reason to name some of those companies, many of you could name 3-5 very easily.
- Tariffs – The continuing theme of Tariffs, not just with China, but with Europe too. Supposedly we are signing Phase 1 of the trade agreement in January 2020. But the details have not been fully disclosed and no talk of what Phase 2 will include or when that is expected. Very sketchy details are worrisome.
- Possible War – With all the rhetoric on nuclear weapons creation in the middle east along with heightening tensions on several matters, you never know what direction this will take.
- Brexit – Looks like this is a done deal. But until it is, it will affect our US-based Multi-National companies.
Sectors to Focus on in 2019
5G – You have heard of 5G for the last two years. Although its not fully rolled out yet which will take many years, it is truly a “game changer”. As fast as you believe 4G is now to watch and download video’s and movies, 5G is up to 10x +/- faster than 4G. This game changer will improve communications and make more streaming services popular.
Pharmaceutical/Bio-Tech – We like this sector last year and it was steady until Q4 2019 until it exploded to the upside. We see continued upside going into 2020. Remember, these industries are a political football and as we get heated into the election season, they will get very volatile.
Technology – This sector will continue to lead the entire market as its focus is on growth and innovation. Many of these companies look expensive fundamentally and technically, but on any pullback in the market, especially in the first half, this is an opportunity to add to your position or initiate one.
Other Predictions (pure guesses, but not outrageous):
10-Year Note – 2.2% (last year: 2.5%)
Inverting Yield Curve (2-Year & 10-Year) – may invert again towards end of 2020 (last year: will invert in 2019 (meaning a recession is within 18-24 months away)
Oil – $50-$60 (Last Year: $50-$60) – I really have no clue about Oil and predicting its price
Gold – $1,500 – $1,700 (Last year: $1,300 – $1,400) – I really have no clue about Gold and predicting its price
Political – Trump will survive impeachment. We will go to war with a country. (Last year: Mueller Report will be bad news, More Government Shutdown’s and no resolution to the Trade Tariffs.)
Infrastructure Legislation – Should be proposed again in 2020, but the politicians have higher fodder for the media. Guess it will be 2021 for this to happen. (Last year: It will be proposed in 2019 & passed.)
Super Bowl Champion – Green Bay Packers (Last year: New Orleans Saints )
NHL Stanley Cup Winner – Boston Bruins (Last Year: Nashville Predators)
NBA Championship – Milwaukee Bucks (Last year: Golden State Warriors)
MLB World Series Winner – New York Yankees (Last Year: Boston Red Sox)
In Summary (same as last year)
Life is good, go buy Grey Poupon mustard and start burning those hundred dollar bills while you are sipping Cristal Champagne. Good advice? Of course not and those of you that have been avid readers of our newsletter and know me, Ron Lang personally, knows that I’m an investment mother hen to my friends and clients. Yes, we are more optimistic now more than we have been in probably 10 years with the economy and over the next 2-3 years with the stock market, but don’t be a pig with your investment winners. Don’t be greedy with your investment thoughts. Be diversified and allocate properly. Everyone is different. If your neighbor, drinking buddy, Maj Jong group, golf comrades, faith-based community members or even your auto mechanic gives you investment advice, think twice. Someone may have a good investing idea, but it doesn’t mean it’s a good investment for you. This is where people make some of their greatest investing mistakes; investing in ideas where you know nothing about it or not seeking investment advice from a licensed professional with an excellent track record.
Of course investing can be fun and on occasion you may want to invest in something that interests you but have no real knowledge in that business sector. That’s fine, as long as it is a small part of your portfolio. Be smart and know your risk profile. We wish you best in 2020, and a happy and especially a healthy new year.
Ronald E. Lang, Principal
Atlas Wealth Management, LLC
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Market Commentary by Allen B. Lang, Senior Portfolio Manager
Dear Clients and Friends,
Que Sera, Sera (What will be, will be).
Another year in the books: New highs in the major index’s. Record unemployment. Wages up.
AND best of all—a 1.6% increase for those collecting Social Security (WOW), of which some or most will be used for Medicare increases.
I was looking at the highs and lows of over 500 or 600 stocks and found, oddly enough,
most were 5-12% below their highs for the year. HMMMM! Makes one think, “How are we at
Overall it was a good year.
Now we are faced with what is on the horizon, especially for 2020.
As I mentioned last year, at this time, I thought the auto industry would not have a good year and so it wasn’t. Somewhat due to the GM strike. But also, the cost of new vehicles has gotten out of hand and leases have become more popular than in years past. But, that begs the question, “What do we do with all the old cars?” Used car lots are going to be over flooded.
As you all well know nothing keeps going straight up and conversely, nothing goes continually down. But, with the new highs in the market one must believe we are due for some “pull back”. And we will experience that, somewhere between 8-12% is my guess. It could happen early in 2020 or near or during summer. I firmly believe that volatility will be more prevalent than years past, mainly because of the national elections in November.
I just wish our Congress would get back to the business of representing us with better medical care, infrastructure rehabilitations, education, immigration reform and cleaning up, by building shelters, our major cities from the homeless.
The new US, Canada and Mexico Trade Agreement (USMCA) is FINALLY working its way to the President for approval. Although I haven’t read the agreement in its entirely, I have heard that it will provide $80 Billion of addition income over 8-10 years.
So, in conclusion, “What’s in store for the markets?”, Que Sera, Sera. I think we will see higher highs in all index’s. With interest rates low, finding quality income investments will be challenging, as I mentioned last month. But there are some values out the and we will
Market Commentary authored by
Allen B. Lang, Senior Portfolio Manager
Atlas Wealth Management, LLC
*We cannot make specific Stock, ETF and Equity recommendations in this report. Call us to discuss what’s on our watch list that may be a fit for your portfolio.
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