Weekly Market Preview: Why I'm Expecting Stocks To Rebound In January
"The years ahead will occasionally deliver major market declines -- even panics -- that will affect virtually all stocks. No one can tell you when these traumas will occur.”
The above quote came from Warren Buffett, who, in his annual letter to shareholders earlier this year, reminded investors that market volatility is par for the course. More importantly, the Berkshire Hathaway (BRK-A) (BRK-B) CEO wanted to underscore not only the unpredictable nature of the stock market, but also that massive price swings are normal and present opportunities. This past week, albeit a holiday-shortened one, was a perfect example of increased volatility.
Immediately following Wednesday’s rally, the Dow on Thursday climbed more than 260 points, or 1.1%, to end at 23,138.82, after plunging more than 600 points intraday. As I have been saying all year, and particularly amid all of the volatility, the stock market has diverged from the fundamental truth that the economy is still solid and is not the ‘hot mess’ the stock market would lead one to believe.
Instead, the volatility has been sparked by the ongoing U.S.-China trade war, rising interest rates, speculation about the Fed Chair’s job security and the shutdown of the government, among other concerns. Despite the fact that stocks ended Friday mostly lower, investors should be encouraged that the market was able to log its first weekly gain amid a turbulent December — a month that was marked by the type of wild swings (between gains and losses) Buffett warned about.
The Dow Jones Industrial Average ended the day 76.42 points lower at 23,062.40, losing of 0.3%, while the S&P 500 Index, finished at 2,485.74, losing 3.09 points, or 0.1%. The Nasdaq Composite, meanwhile, closed 5.03 points higher, or 0.1%, to 6,584.52. For the week, the tech-heavy index was the biggest gainer among the three, rallying 4%, while S&P 500 and the Dow added 2.9% and 2.8%, respectively. Also encouraging that this was the first time all three major benchmarks — despite nursing sharp month-to-date losses — netted weekly gains since the end of November.
While some traders and fund managers are advising to sell into all rallies, there are now arguably more buyers than there are sellers. As it stands, amid all the back and forth, the Dow and the S&P, which are still neck deep in correction territory, are still down almost 10% for the month of the December. Meanwhile, the Nasdaq is in a bear market territory as it is still off more than 20% from its all-time high.
This week, with markets closed Tuesday for New Year’s Day, investors have another holiday-shortened week and must now decide when to take action. And if everything goes the way I expect this coming week, January could calm all of the chaos. The upcoming fourth quarter earnings, along with various economic data — many of which are expected to be solid — should give investors as well as equity strategists the confidence they desperately crave
FactSet data calls for Q4 earnings of S&P 500 companies are expected to rise by 12.4%, which would mark the fifth straight quarter of double-digit growth in corporate profits. If that were not enough, January has been historically volatile on the positive side. For different factors, including tax selling and bonus money deployment, not only do stocks tend to rise in January, it’s been that way over the long haul, according to data from Standard & Poor’s.
So, with 2019 right around the corner, I expect a basket of stocks, particularly those with strong top- and bottom-line growth projections that have suffered losses in 2018, to present strong buying opportunities in January, and thus, throughout 2019.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.