Monthly Archives: December 2018

Random Thoughts

Year to date through December 28, only two of the 11 sectors in the S&P 500 posted YTD total returns advances.

Yet history divines an encouraging implication from these negative returns. Since 1970, the S&P 500 recorded an average annual total return of 11.6% and was up 80% of the time. During these same years, the average difference between the returns for the best and worst sectors was 41 percentage points.

In 2018, the 23.5 point difference between health care’s 5.0% advance and energy’s 18.5% decline was well below that long-term average.

In the year after recording a below-average differential, the S&P 500 posted a positive full-year total return 91% of the time.

Conversely, the 500 was up only 60% of the time when the return dispersion was above average.

So should history repeat, and there’s no guarantee it will, this year’s lump of coal could metamorphize into an unanticipated gem.

Market Insights 12/28/2018

U.S. stocks finished mixed to close out a wild week that saw the worst Christmas Eve session followed by a sharp rally and a huge intra-day upside reversal.

Treasury yields and the U.S. dollar dipped as a limited government shutdown is likely to continue into the New Year. Crude oil prices and gold increased.

The Markets…

The Dow Jones Industrial Average declined 76 points (0.3%) to 23,062

The S&P 500 Index decreased 3 points (0.1%) to 2,486

The Nasdaq Composite ticked 5 points higher (0.1%) to 6,585

In moderate volume, 897 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.72 to $45.33 per barrel and wholesale gasoline ticked $0.01 higher to $1.30 per gallon

The Bloomberg gold spot price advanced $4.56 to $1,280.27 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.1% to 96.34

Markets rallied for the week, as the DJIA rose 2.8%, the S&P 500 Index grew 2.9%, and the Nasdaq Composite surged 4.0%

Pending homes sales fall for second month, manufacturing data above forecasts

The Chicago Purchasing Managers Index decreased to 65.4 in December, from 66.4 in November, and versus the Bloomberg expectation of 60.2. A reading above 50 denotes expansion and this was the ninth reading north of 60 this year. The report likely eased some concerns that have nudged higher as several regional manufacturing reports have showed much larger-than-expected slowdowns in growth, with the Richmond Fed gauge surprisingly contracting for the first time since 2016.

Treasuries finished higher, with the yield on the 2-year note decreasing 4 basis points to 2.52%, the yield on the 10-year note dropping 5 bps to 2.72%, and the 30-year bond rate declining 3 bps to 3.03%.

Pending home sales fell 0.7% month-over-month in November, versus projections of a 1.0% increase, and following the unrevised 2.6% drop registered in October. Sales were 7.7% lower year-over-year. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which unexpectedly rose in November.

Global markets mostly higher after volatile U.S. session ends in gains

European equities were higher, with investors processing yesterday’s choppy U.S. market trading that ultimately culminated in a strong rise. European stocks reversed to the upside after Thursday’s heavy selling, particularly in French and German equities, which may have helped push German stocks—now on track for their worst year since 2008—to enter 2019 in bear market territory. Today’s move higher was led by basic resources stocks, following a rise in metal prices and despite trade tensions between the U.S. and China continuing to heighten global growth worries.

Stocks in Asia finished mostly higher, following the wild session in the U.S. yesterday that came on the heels of an historic more than 1,000 point rally for the Dow. Mainland Chinese stocks gained ground and Hong Kong markets nudged higher as Reuters reported that a Chinese Ministry of Commerce spokesman had confirmed U.S. and China face-to-face trade talks are slated for January.

Trade worries still appeared elevated as it was unclear if the talks will yield progress toward a permanent agreement between the world’s two largest economies. Mainland Chinese stocks, which will be closed on Monday, posted the worst performance among the major equity indexes for 2018. Australian, South Korean and Indian stocks also moved higher

Japan’s Nikkei 225 Index saw pressure in its final session of the year as the markets will be closed for a holiday on Monday. The index recorded its worst annual decline since 2011, per Bloomberg, after Bank of Japan policymakers warned that “uncertainty over global conditions is heightening” and that the situation could be prolonged.

Stocks rally in final week of 2018 amid wild market swings

U.S. stocks finished notably higher after three consecutive weeks of declines, as volatility continued to be elevated with large swings in market action, defying the tradition of more quiet trading during a holiday week. Markets posted their lowest Christmas Eve returns ever as investors tried to decipher a statement from Treasury Secretary Mnuchin that market liquidity was firm.

After the Christmas holiday, equities reversed course with the Dow notching its largest point gain in history as comments from the White House appeared to somewhat resolve fears about the job security of Fed Chairman Jerome Powell. Thursday’s trading was particularly volatile, with U.S. stocks staging a final-hour comeback—with the Dow swinging 870 points—after being deep in the red for most of the trading session.

Energy issues defied the market upswing as WTI continued to plummet and reached a multi-year low on Monday with U.S. inventories rising. The U.S. dollar saw some pressure as markets didn’t seem bothered by a partial shutdown of the government that continued through the shortened market week. The 2-year and 10-year Treasury yields extended recent declines and the focus remained on global growth concerns.

As the markets enter another holiday-shortened week, next week’s economic calendar will ramp up, with key releases including the ISM Manufacturing PMI, Markit’s Manufacturing and Services PMIs, and monthly auto sales. However, the headlining release could be Friday’s December non-farm payroll report, with the wage component likely garnering the most scrutiny, as well as a joint interview with Fed Chairman Jerome Powell, with his predecessors Janet Yellen and Ben Bernanke.

Please Note: the U.S. markets will be closed on Tuesday, January 1st in observance of the New Year holiday.

Market Insights 12/27/2018

U.S. stocks staged a final-hour comeback from hefty intra-day losses, with the S&P 500 adding to yesterday’s largest percent rise since 2009 and the Dow swinging 870 points during the day following Wednesday’s biggest point gain in history.

Treasury yields finished mixed and the U.S. dollar saw pressure. Gold gained ground and crude oil resumed its fall after yesterday’s sharp recovery.

The Markets…

The Dow Jones Industrial Average rose 260 points (1.1%) to 23,139

The S&P 500 Index increased 21 points (0.9%) to 2,489

The Nasdaq Composite gained 25 points (0.4%) to 6,579

In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil traded $1.61 lower to $44.61 per barrel and wholesale gasoline was off $0.03 at $1.29 per gallon

The Bloomberg gold spot price advanced $8.28 at $1,275.42 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.5% to 96.54

Consumer Confidence misses, jobless claims in line

The Consumer Confidence Index fell to 128.1 in December from November’s upwardly-revised 136.4 and below Bloomberg estimates of 133.5. The Present Situation Index and the Expectations Index of business conditions for the next six months both declined month-over-month. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 34.6 from the 34.2 level posted in November. However, the portion of the survey showing the percent of people expecting more jobs in the next six months fell by the most since 1977.

Senior Director of Economic Indicators at the Conference Board Lynn Franco, said “Expectations regarding job prospects and business conditions weakened, but still suggest that the economy will continue expanding at a solid pace in the short-term. While consumers are ending 2018 on a strong note, back-to-back declines in Expectations are reflective of an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

Weekly initial jobless claims decreased by 1,000 to 216,000, in line with estimates, with the prior week’s figure revised higher to 217,000. The four-week moving average decreased by 4,750 to 218,000, while continuing claims decreased by 4,000 to 1,701,000, north of estimates of 1,675,000.

Treasuries were mixed, with the yield on the 2-year note falling 4 basis points (bps) to 2.57% and the yield on the 10-year note dropping 2 bps to 2.78%, while the 30-year bond rate ticked 1 bp higher to 3.07%.

Tomorrow’s economic calendar will remain stunted by the partial government shutdown, delaying the releases of the advance trade balance and wholesale inventories.

Europe falls, Asia mostly higher after U.S. stocks rise most in almost a decade

European equities finished lower in a return to action following an extended holiday break, reversing slight early gains despite the sharp surge in the U.S. markets that saw the S&P 500 post the largest percent gain (5.0%) since 2009 and the Dow post its largest points gain (over 1,000 points) in history. The decline was broad-based, but struggles for the auto sector continued to lead the way.

The euro moved higher even as the European Central Bank reiterated its view that significant monetary policy stimulus is needed and downside global economic risks remain, while bond yields in the region finished mostly lower. German and Italian shares are lower after being closed Monday when other European markets saw losses, with Italian banking stocks struggling following a failed financing attempt for Banca Carige. U.K. stocks came under pressure and the British pound was little changed with sentiment remaining hampered by festering Brexit uncertainty.

Stocks in Asia were mostly higher on the heels of the sharp rally in the U.S. yesterday, with Japanese equities rallying in the wake of yesterday’s drop in the yen and as iPhone XR suppliers seemed to benefit from a report that the model comprised nearly a third of total U.S. iPhone sales.

Australian stocks gained solid ground following an extended holiday break, aided by the energy sector on the heels of yesterday’s largest one-day gain for crude oil prices since 2016. However, Chinese stocks moved lower amid lingering growth concerns after November earnings for China’s industrial firms dropped for the first time in nearly three years

Market Insights 12/24/2018

U.S. equities were decidedly lower in a shortened market session, with low volume, as a limited government shutdown continues into the holiday after a bill that addresses both parties’ concerns could not be passed, while trade worries and European political uncertainty remained.

Treasury yields were lower, gold was higher, and the U.S. dollar was down.

Crude oil prices declined sharply as global economy concerns persisted.

The Markets…

The Dow Jones Industrial Average tumbled 653 points (2.9%) to 21,792

The S&P 500 Index dropped 66 points (2.7%) to 2,351

The Nasdaq Composite fell 140 points (2.2%) to 6,193

In low volume, 657 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil declined $2.08 to $43.51 per barrel and wholesale gasoline was little changed at $1.32 per gallon

The Bloomberg gold spot price gained $12.05 to $1,268.99 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.5% to 96.49

Consumer confidence reads due out after the market returns from holiday break

Treasuries were higher, while the economic calendar was void of any major releases today, with the yield on the 2-year note dropping 5 basis points (bps) to 2.59%, the yield on the 10-year note decreasing 4 bps to 2.75% and the yield on the 30-year bond dipping 3 bps to 3.00%.

The economic docket will continue on Wednesday with the December Richmond Fed Manufacturing Activity Index, forecasted to rise to 15 from November’s level of 14, with a reading above zero denoting expansion.

Europe fell, Asia mixed after last week’s U.S. market tumble

European equities were lower after a sharp selloff in U.S. shares last week. Fears of a global growth slowdown may have dampened sentiment during the shortened market session.

Also, worries that the Fed may make a mistake and could be tightening monetary policy too quickly also looked to be on display. European trading likely was affected by lower trading volumes, as several markets were closed and the remaining markets had shortened sessions ahead of the Christmas holiday.

Stocks in Asia finished mixed following the Dow and the Nasdaq registering the worst weekly tumbles since the financial crisis and the S&P since 2011.

Mainland Chinese equities rose and Hong Kong shares declined as China’s Ministry of Commerce confirmed vice-ministerial talks on intellectual property and the balance of trade.

South Korean stocks decreased and Indian equities lost ground, while Australian shares increased. However, volume was lighter than usual as markets in Japan were closed for a holiday.

Please note: U.S. stock and bond markets will be shuttered tomorrow in observance of the Christmas holiday.

Random Thoughts

As we enter the last full-week of trading for 2018, investors are not feeling optimistic that Santa Claus will finally arrive.

Could he just be delayed, after mistaking the brightness of Wall Street’s red returns for that of Rudolph’s guiding beacon? Last week, global equity markets not only continued to tumble, but also pierced through important support levels that represented lows from prior corrections.

The S&P Composite 1500 Index declined 7.1% through the 21st, along with each of its cap-size components and all of its 11 sectors. In addition, just one of its 146 sub-industries rose on the week, leaving only 1% of them trading above their 10-week moving average. Since 1995, this is just the 15th time that the percentage dipped below 5% in an unconfirmed bear market (the Index has yet to fall 20%).

Indeed, in only one instance was this low reading a warning of more dire consequences to come. All other times the market was in the midst of a correction that bottomed before eclipsing the -20% threshold. Even more encouraging, the market was higher by an average of 14% six months later (8.8% if you only include one reading per calendar year).

So if history should repeat, and there’s no guarantee it will, this selloff may be nearing its end, thus offering investors some Ho-Ho-Hope for favorable returns for the remainder of this year and into next.

Market Insights 12/19/2018

U.S. equities tumbled, touching new lows for the year, after the Fed hiked rates and signaled ‘gradual’ hikes are still ahead, but at a slower pace than initially predicted.

Treasuries also rose following the Fed statement, while a better-than-expected read on housing got swallowed by the attention surrounding the rate decision.

The U.S. dollar saw pressure and gold reversed course to finish lower, while crude oil prices rose after yesterday’s selloff amid lower inventories.

The Markets…

The Dow Jones Industrial Average (DJIA) fell 352 points (1.5%) to 23,324

The S&P 500 Index declined 39 points (1.5%) to 2,507

The Nasdaq Composite lost 147 points (2.2%) to 6,637

In heavy volume, 1.3 billion shares were traded on the NYSE and 2.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.57 to $48.17 per barrel and wholesale gasoline was up $0.04 at $1.39 per gallon

The Bloomberg gold spot price was down $7.29 at $1,242.13 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 97.0

Fed increases target range, housing data above forecasts

At 2:00 p.m. ET, the Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, announcing that it increased its target range for the Fed funds rate to 2.25%-2.50%, its fourth hike this year.

The Committee continued to indicate that more rate hikes would be appropriate, however it appeared that its tone softened a bit. While the vote to raise the Fed funds rate was unanimous, interest rate expectations, known as the “dots plot”, showed some division, as six Members are still looking for three increases next year, down from nine in September, with the average now expecting only two more increases next year, a reduction from a previous forecast. The Committee noted that “it judges that some further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term.”

Existing-home sales in November increased 1.9% month-over-month to an annual rate of 5.32 million units, above expectations of 5.20 million, following October’s unrevised 5.22 million annual rate. Sales of single-family homes were up m/m and were 6.7% below year-ago levels, while purchases of multi-family structures were also up m/m and were down 9.0% y/y. The median existing-home price was up 4.2% y/y to $257,700. Unsold inventory came in at a 3.9-months pace at the current sales rate, up from 3.5 months a year ago. Inventory of homes for sale decreased m/m. Sales rose m/m in the Midwest Northeast and South, but declined in the West. Existing home sales account for the majority of the housing sales market.

The MBA Mortgage Application Index declined 5.8%, following the prior week’s 1.6% rise. The drop came as a 2.3% retreat in the Refinance Index combined with a 6.8% loss in the Purchase Index. The average 30-year mortgage rate fell 2 basis points (bps) to 4.94%.

Treasuries were higher following the Fed’s rate decision, as the yield on the 2-year note ticked 1 basis point (bp) lower to 2.63%, the yield on the 10-year note fell 4 bps to 2.77%, and the yield on the 30-year bond rate declined 6 bps to 3.01%.

Tomorrow’s economic calendar will begin with weekly initial jobless claims, expected to rise to 221,000 from the prior week’s 206,000, followed by the Index of Leading Economic Indicators, with economists forecasting a 0.1% m/m increase for November, matching that seen the month prior, and the Philly Fed Manufacturing Index will round out the docket.

Europe higher as Italian deficit fears subside, Asia mixed ahead of Fed decision

European equities were higher following reports that Italy and the European Commission reached an informal agreement to resolve a lengthy budget deficit standoff. Sentiment seemed to improve on hopes that the European Union would not subject Italy to an excessive deficit review or disciplinary measures. Investors were attuned to this afternoon’s Fed press conference after U.K. inflation rates fell to a 20-month low in November. Global growth and Brexit concerns continued to fester and investor focus was also drawn toward Tuesday’s large drop in crude oil prices, though U.S. inventories were lower.

Stocks in Asia finished mixed ahead of an interest rate and policy decision from the Fed today, while uncertainty regarding the Federal Reserve’s rate path seemed to add to hesitancy in the market as worries that global growth may be slowing lingered. Stocks in Hong Kong rose, but those traded in mainland China declined sharply, with the Asian nation reportedly beginning its Central Economic Working Conference this week and observers looked for clues on possible future trade reforms.

Japanese equities fell, as weaker export data was released, and resource-related shares in Australia pressured the country’s markets following yesterday’s drop in crude oil prices. Meanwhile, markets in South Korea and India notched gains for the day. With volatility remaining elevated among the major stock market sectors

Random Thoughts

The S&P 500 is projected to record a 22.7% jump in full-year operating results in 2018, according to S&P Capital IQ consensus estimates.

This percentage gain would rank 2018 in the Top 10, based on GAAP results from 1945-1988 and operating EPS thereafter.

Yet in a “what will you do for me next year?” response, the S&P 500 declined 4.8% YTD through December 18. This reaction was not inconsistent with prior performances.

In addition, history shows, but does not guarantee, that in the years following the strongest EPS gains, earnings growth was only about 1/3rd that of the prior-year’s amount, averaging 7.6%, which is similar to the current 7.2% estimated growth for 2019.

Price returns for the subsequent year also skidded, recording a slight decline on average as EPS growth began to descend the leeward side of the mountain.

Market Insights 12/17/2018

U.S. equities began the new week where it left off from last week, notching solid losses amid persistent global growth anxiety, as a drop in both domestic regional manufacturing activity and homebuilder sentiment joined recent disappointing economic data out of China and the Eurozone.

Uncertainty surrounding Wednesday’s looming Fed monetary policy decision added another wrinkle to the landscape.

Treasury yields fell, as did the U.S. dollar and crude oil prices, and gold was higher.

The Markets…

The Dow Jones Industrial Average tumbled 508 points (2.1%) to 23,593

The S&P 500 Index dropped 54 points (2.1%) to 2,546

The Nasdaq Composite plunged 157 points (2.3%) to 6,754

In heavy volume, 1.1 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.32 to $49.88 per barrel and wholesale gasoline was down $0.02 at $1.41 per gallon

The Bloomberg gold spot price was up $6.97 at $1,245.99 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.3% to 97.13

Regional manufacturing activity and homebuilder sentiment fall

The Empire Manufacturing Index showed output from the New York region fell much more than expected but remained at a level denoting expansion (a reading above zero) for December. The index dropped to 10.9—the lowest since May 2017—from November’s unrevised 23.3 level, with the Bloomberg forecast calling for a decline to 20.0.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month unexpectedly declined to 56 from November’s unrevised 60 level, where it was expected to remain. A level of 50 separates good and poor conditions. This was the lowest level since May 2015, and the NAHB noted the growing housing affordability crisis is hurting the market. The NAHB added that this housing slowdown is an early indicator of economic softening, and it is important that builders manage supply-side costs to keep home prices competitive for buyers at different price points.

Treasuries were higher, as the yield on the 2-year note declined 5 basis points to 2.69%, while the yields on the 10-year note and the 30-year bond were down 4 bps to 2.85% and 3.11%, respectively.

Today’s reports kicked off a week that will likely be dominated by Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC). Although expectations remain that the Fed will announce a December rate hike, uncertainty has ticked higher and expectations regarding further hikes next year have waned a bit amid the plethora of global noise and heightened volatility in the markets as of late.

Although the markets will likely be at the mercy of the Fed’s decision, other events on this week’s economic calendar could also command some attention. We will get some more clarity on the health of the housing market, which has been one area of U.S. economic concern, with today’s homebuilder sentiment report being followed by tomorrow’s housing starts and building permits report, with economists forecasting starts to have declined 0.2% m/m during November to an annual pace of 1,225,000 units, and permits to have fallen 0.4% m/m to a pace of 1,260,000. Later in the week we will get existing home sales, as well as a look at the Index of Leading Economic Indicators, the final read on Q3 GDP, personal income and spending, and the revision to the December University of Michigan Consumer Sentiment Index.

The U.S. dollar found some pressure amid the festering global growth worries and as hopes of a trade deal between the U.S. and China are lingering, while recently flared-up political concerns are also in focus after last week’s contentious debate on camera between President Donald Trump and democratic leaders that furthered the uncertainty about a potential government shutdown.

Europe lower as global uneasiness remains, Asia mostly higher despite lingering concerns

European equities finished lower, with global economic growth concerns festering as last week’s disappointing data out of the Eurozone and China were followed by sharp drops in U.S. regional manufacturing and homebuilder sentiment reports.

The euro and British pound gained ground versus the U.S. dollar and bond yields in the region were mostly higher. The Eurozone trade surplus unexpectedly shrunk in October, while its consumer price inflation year-over-year in November was surprisingly revised lower. The markets also likely proceeded with some caution ahead of this week’s monetary policy decisions out of the U.S., England and Japan.

Stocks in Asia finished mostly higher following another volatile week in the global markets that saw U.S. equities fall back to correction territory. Trade optimism appeared to remain regarding talks between the U.S. and China, while stocks showed some resiliency in the face of recent disappointing economic data out of China and the Eurozone. The markets moved higher even as caution likely prevailed ahead of the monetary policy decision in the U.S., which will be followed by announcements from the Bank of Japan and Bank of England.

Stocks in Japan gained ground, despite some strength in the yen, and mainland Chinese equities nudged higher, but those traded in Hong Kong finished flat. Markets in South Korea and Australia moved higher, and Indian securities advanced, even after late-Friday’s softer-than-expected November trade data.

Random Thoughts

Global equity markets fell sharply last week on both fact and fiction.

Fact: China reported a slowdown in retail sales growth, causing many to alter their economic forecasts for the globe’s second largest economy.

Fiction: Investors then began to fret over the U.S.’s likelihood of slipping into an earnings and economic recession.

What’s more, the S&P 500 notched its 27th price decline of 1% or more on a closing basis, slightly ahead of the calendar year average of 25 since 1950 but well below the 38 count since the end of 1999. Volatility will likely be the watch word in the week ahead as investors digest a narrowing stream of U.S. economic data reports, but anxiously await the FOMC meeting, out of which we see an additional rate hike.

A topic of tremendous interest this week centered on the possibility of an imminent S&P 500 EPS recession and its ability to project an economic recession. The economic recession rule of thumb requires two successive quarters of GDP decline, revealing 12 since 1945. Applying this rule to S&P 500 earnings, we uncover 15 EPS recessions when looking at year-over-year quarterly comparisons of GAAP EPS from 1945-1988 and operating results thereafter.

Comparing starting dates for each, we find that EPS recessions and economic recessions began around the same time, since the first quarter of the EPS recession preceded economic recessions by a median of one month, but was successful in forecasting economic recessions only 50% of the time. What’s more, the stock market did a better job of anticipating EPS recessions than the other way around, as the S&P 500 started a decline in excess of 10% a median of four months ahead of the start of an EPS recession and was correct nearly 60% of the time.

What about today? We believe investors are premature in projecting the start of an EPS recession, and therefore, and economic contraction. According to S&P Capital IQ consensus estimates, the rate of change in S&P 500 EPS growth will slow from its Q3 2018 peak of 28.6% to 5.2% by Q3 2019, before recovering to a 12%+ pace through Q3 2020.

In other words, a slowdown but no recession. As a result, we project the S&P 500 to continue its reassessment of its anticipated angle of ascent in the period ahead, but not begin the painful process of preparing for the eventuality of a new bear market.

Random Thoughts

On Monday, we lowered our 12-month target for the S&P 500 to 2975 from 3100.

We think that U.S. share-price appreciation should approximate earnings growth. We forecast a 6% rise in S&P 500 EPS next year, which is lower than the current consensus projections of 7.4%, and nearly half the consensus 10% estimate at the end of Q3 2018.

We see value-oriented sectors narrowing the performance gap with growth and suggest investors focus on high quality equities with measurable dividends and low volatility ETFs.

We also think seasonal rotation may come into play in 2019. After a dismal 2018 we feel a stabilizing of foreign equity returns is likely, due to lower P/Es, higher yields and a possible softening in the value of the U.S. dollar.

Finally, since the Fed is nearing the end of its rate-tightening cycle, we think bonds should present increased attractiveness relative to stocks as yields reach more compelling levels