Monday January 28, 2019

// December 17th, 2018 // Daily News

It’s now or never for the 2018 stock market, which seems immune to any good news

The big stock indexes have been unable to escape the bottom of their 2018 correction range despite several factors that were billed as bullish catalysts. The S&P 500 is now down 2.7 percent this year.
Gauges of investor mood have soured including weekly retail-investor polls, futures positioning and even a New York Times Styles section feature foretelling a coming financial crash.
From a technical and tactical angle, the market enters the final 10 days of the year at something like a now-or-never moment.
What do we call a stock market for which good news is never good enough to hold off the sellers, where every excuse to look on the bright side goes unused, where the half-full glass always seem to spill by the close of trading? This is the market we have, and some would call it a bear.
Certainly, this kind of behavior is what prevails during bear markets. But it’s also how a market would act during a complex, late-cycle correction that might or might not lead to serious and long-lasting declines.
Since October, the following promised “bullish catalysts” failed to support the indexes: a third straight 20 percent annual gain in reported corporate profits, the reopening of the “stock buyback window,” the passage of the midterm elections which “always” leads markets higher, a dovish turn in Fed messaging, a trade truce with China and the onset of the bullish November-December seasonal phase.
The market has likewise been unable to capitalize on periodic “oversold” readings to generate a sustainable or convincing rally. The S&P 500 closed Friday at the very bottom of its correction range after finishing lower than it opened each of the past four days.
All year, in fact, the market was resistant to plausibly positive influences. In a column here Oct. 8, this was cited as a point for the bears:
“One skeptical observation of 2018 is just how much profoundly good news it has taken to muscle the S&P 500 higher by ‘only’ 8 percent: 20 percent profit growth, 3.8 percent unemployment, a 3-4 percent GDP pace, and some $1.2 trillion in annualized cash sent to shareholders this year via dividends and stock repurchases.
“What happens when the news gets slightly less great?”
We’re finding that out, with the S&P having disgorged that 8 percent year-to-date gain and further to a 2.7-percent drop for the year. Tightening credit conditions, a shakier global economy and pervasive “late-cycle” psychology mean that relief for the market will likely come only when the default expectation priced into stocks is “bad news.”
Are we there yet?
Stocks are definitely cheaper on paper than they’ve been in a while, though that cheapness will only be validated if earnings next year don’t roll over too much harder than current expectations.
Citigroup strategist Tobias Levkovich calculates that the S&P 500 right now builds in an implicit forecast of zero earnings growth next year (subject to several assumptions about “fair value” under current conditions). If so, that would mean the market is building a cushion against some tougher times, but the process of analysts chopping down quarterly forecasts from the current expectation of 8 percent profit gains would not likely please investors along the way.
The free-cash-flow yield of the S&P 500 based on the past year’s results — simply the inverse of the price-to-free-cash-flow ratio — is approaching levels it reached toward the end of the grinding, multi-stage downturn of 2015-2016. (The higher the FCF yield, the lower the valuation.)
That was another period that got into the gray area between “correction” and “virtual bear market” and gave way to a two-year rally helped first by a dovish central bank response then the presidential-election surge in confidence, growth expectations and tax-cut anticipation.

Today’s Inspiration

DECEMBER 17, 2018
Hang Tough

In Galatians 6:9, “losing heart” and “fainting” refer to giving up in the mind. The Holy Spirit tells us not to give up in our mind, because if we hold on, we will eventually reap good things.

Think about Jesus. Immediately after being baptized and filled with the Holy Spirit, He was led into the wilderness to be tested and tried by the devil. He did not complain and become discouraged and depressed. He did not think or speak negatively. He did not become confused trying to figure out why this had to happen. He went through each test victoriously (Luke 4:1–13).

Can you imagine Jesus traveling around the country, talking with His disciples about how hard everything was? Can you picture Him discussing how difficult the Cross was going to be…or how He dreaded the things ahead…or how frustrating it was to have no roof over His head, no bed to sleep in at night?

Jesus drew strength from His heavenly Father and came out in victory. We have His Spirit dwelling in us and the strength available to make it through whatever we are facing.

We can handle our situations the same way Jesus did—by being mentally prepared through “victory thinking” rather than “give-up thinking.”

Prayer Starter: Father, I thank You for the power of Your Holy Spirit that strengthens me to keep pressing on. Please help me to not “faint” in my mind when things get difficult. Thank You that I will reap a reward if I keep moving forward and refuse to give up! In Jesus’ Name, Amen.

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