Camarda is happy to report the obvious, that 2019 was a banner year for stocks, with greed trumping fear into early 2020, and the market still strong – though sputtering on virus fears – as this is written in late January.
Not even the threat of a hot war with Iran took any steam out of stocks. There are many explanations for the surge in bull sentiment, none of which are terribly convincing from an economic perspective.
While we are still middlin’ bullish on US stocks, and crazy bullish on non-US stocks, it’s important to be reminded that stocks never go straight up, and some sort of correction or pullback should be expected.
While the economic impact of the coronavirus won’t be known for some time, it may be serving as the impetus for an overdue shift from greed to fear.
When it comes, we will consider it a buying opportunity for those with available cash. We are not expecting a bear market in the US in the near to midterm, though we clearly expect the rapid pace of US stock appreciation to cool off a bit.
US stocks remain fairly richly valued by historical standards, and we continue to believe that better long term prospects lie offshore, and in the still-unloved value stocks category, including those in the US.
We are excited that value stocks have been stirring since mid-2019, and we expect much more upside as market leadership eventually shifts from tech/growth to value. Value has historically been the best performer, but has been in the basement so long that we expect some real fireworks when it eventually takes market leadership again.
To quote from Andrew Addison appearing in Barron’s:
“It is no surprise that the U.S. stock market has been outperforming global stock markets for a long time—and that includes both developed and emerging markets. In particular, emerging markets have underperformed the S&P 500 index since 2010. From its 2010 peak, the MSCI Emerging Markets index has underperformed the S&P 500 by 65%.”
While emerging markets have been in a nine-year bear market since their 2011 top, the outlook is beginning to brighten. Non-US stocks were near records before the virus hit, but have still lagged far behind US stocks. We continue to believe this is where the big money will be made going forward.
If past patterns repeat, when the cycle turns upward, emerging markets should outperform for seven to nine years. Contrarians, take note!”
The virus-driven hammer drop China’s experiencing now should lead the entire emerging sector lower, creating an attractive buying opportunity through late winter and early spring.
