Weekly Market Preview: All I Want for Christmas Is a Stock Market Rally
“I don't want a lot for Christmas, there's just one thing I need … I don't care about the presents underneath the Christmas tree…” so the song goes by Mariah Carey.
Admittedly, Carey’s “dear Santa” version is much more convincing than any letter I’ve ever written to St. Nick — for a lot of reasons. But as we’re now heading into the final week of the year with the three major averages down more than 12% in December alone, there is a collective plea among investors, caroling: “All I want for Christmas is a stock market rally.”
But will the wish come true?
The Dow Jones Industrial Average closed 414 points lower (or 1.8%) on Friday. If you’re keeping score at home, that amounts to a drop of 1,655 points, or 6.9% in just one week, netting its deepest weekly decline since the great recession of 2008. Meanwhile, the tech sell-off, which has sent the Technology Select Sector SPDR Fund (XLK) down 7.5% year-to-date, has placed the Nasdaq Composite, which declined 3% Friday, in a bear market.
FAANG giants Facebook (FB) and Apple (AAPL), which slumped 6% and 4%, respectively, were two of the biggest decliners. If that were not enough, weaker-than-expected earnings from FedEx (FDX), which is seen as a barometer of global growth, has spilled over into other sectors. And, of course, there’s the ongoing trade war with China that earlier this week was further exacerbated by the overly-aggressive actions of the Federal Reserve, which on Wednesday raised interest rates for the fourth time this year.
Those concerns aside, the holiday shopping season (the season of giving, or buying) can drive stocks higher, fueling an end-of-year rally. In a couple of weeks, investors will look to see the extent to which stocks rebound in a manner that suggests confidence that 2019 can be a bounce-back year. Regardless of whether you're bullish or bearish, some important decisions will need to be made, especially if you’re looking to correct some portfolio mistakes.
Forever the optimist, I see the recent stock market correction as a buying opportunity. And I use the word “recent” knowing that the market has been on a gradual decline for the past six months. But long-term value investors who have waited for the best market deals should be buying this dip. Some of the market’s best stocks, which offer enormous long-term value, are now on sale and are trading at discounted share prices.
Sure, there are value traps out there. Names such as General Electric (GE) comes to mind, demonstrating tons of red flags. And they deserve to be avoided. But widespread panic is not the answer. There’s no justifying reason, other than fear, for a stock like Apple — currently priced at $150 — to be trading 35% below its 52-week high of $233. This same argument goes for another high-profile stock like Amazon (AMZN), which has plunged some 30% since October.
Considering that e-commerce accounts for 10% of total U.S. retail revenues, Amazon’s king of e-commerce status suggests its stock belongs underneath every Christmas tree. All told, stocks, in general, are now trading at historically cheap valuations (below the S&P 500’s P/E of 18) and now offer good-to-great dividend yields (above the S&P 500’s 2.00%). As such, a stock market rally seems plausible, if not imminent. Dear Santa, that’s not too much to ask, is it?