- 2019 turned out to be one of the best years of all times for investors.
- The global equity market surged – FANG stocks led the pack.
- The Dow Jones' recent break from a 1.5 year-long consolidation spells trouble for perma bears.
- Looking for a helping hand in the market? Members of The Lead-Lag Report get exclusive ideas and guidance to navigate any climate. Get started today »
You get recessions, you have stock market declines. If you don’t understand what’s going to happen, then you’re not ready, you won’t do well in markets. – Peter Lynch
For the most part of it, 2019 screamed recession is imminent – the Fed warned investors by cutting the federal funds rate, as even the yield curve inverted at some point. But resilience in the stock market continued with the broad US equity market outperforming. The Santa rally is alive and kicking.
But it’s not a domestic thing only. This past week global stocks gained another $1 trillion in market capitalization as investors remained bullish on stocks. Global stock markets are now worth $86.4 trillion, just shy of all-time highs and close to 100 percent of global GDP. According to the famous Buffett’s bubble indicator, that’s bubble territory.
In a recent Lead-Lag Report, I pointed out the ways the Fed did help fuel the stock market rally. It has been very active since July 2019, purchasing almost half of the securities (valued in USD) it started selling at the end of 2017. The Fed's total assets rose last week by another $41.5 billion, most since October on liquidity injection.
With just a handful of trading days left in the year, market activity figures will be pretty listless and volatility low until we turn the calendar. That tends to be a suitable environment for equities to pick up some modest gains as we wrap up the year. Large caps have been able to stay ahead of small and mid caps, but it's interesting to note that micro caps have delivered some outsized gains over the past month.
For all the fear about trade wars, geopolitics, or the unsustainable global debt level, 2019 turns out to be one of the best years for investors. Global stocks have piled on more than $10 trillion, and bonds have been on fire – all these while oil is up about 25%.
The 2016 US presidential election ignited a staggering rally – the Dow broke higher and never looked back. The consolidation that followed for most of 2018 was just that, a consolidation, with investors buying every single dip.
Part of market psychology is that everyone wants to buy a dip until the market makes a dip, and everyone gets scared and runs away. This time was different. Not only investors did not run away from the meltdown at the start of 2019, but they bought the dip aggressively.
An interesting observation is that the three consolidation periods on the Dow Jones chart in the last decade took almost the same time. The market rallied strongly after about 1.5 years of consolidating levels.
This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.
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