After a Monster Stock Rally in January, What Next?

Baron Rothschild once famously said, “Buy when there is blood on the streets.” This was the case in the last 3-4 months of Year 2018 as the S&P500 and the general stock market under-performed. In 2018, cash was indeed king as it beat most asset classes that year. The negative sentiment was that the under-performance of the market will spill over to the new year but that has not exactly been the case, in fact the stock market has had its best January performance since 1987 (32 years ago). To put how long ago 1987 is, Ronald Reagan was still the president of the United States at that time. Below is a screenshot of the SPY, a S&P 500 index fund tracker available to purchase for free on M1 Finance. I reviewed M1 Finance and it is a fintech compay disrupting the investment account industry by offering free trades and automatic re-balancing to take advantage of downturns in the market and redistributing dividends and new money to underweight stocks or index funds within your portfolio (similar to the correction we experienced in the last few months).
S&P 500 Index Tracker performance from M1 Finance.
Due to the performance in the market, valuations have grown and major companies such as Apple and Facebook have reported good earnings. Facebook is due for a comeback as I wrote in a previous blog post and I was not surprised with the ~12% stock performance over the past week. The question on everyone’s mind is what can we expect in February and the rest of the year. I wrote a blog post on what we can expect in 2019, within the near-term I anticipate another rally due to the relief in the trade war between US and China and the 2019 IPO euphoria. I expect Robo-Taxis to make their way to the main street. Alphabet plans to release its earnings on February 4, 2019 and we should hear an update on Waymo One, its self-driving car service.
After the rally in the first half of 2019, I anticipate increased volatility and another correction with the possibility of a recession in 2020. The recent forecast released by the Federal Open Market Committee has the median US GDP growth rate decreasing from 3% in Year 2018 to 2.3% in Year 2019. The range of expected US GDP growth for 2019 is between 2.0% to 2.7%. The upper end of the range is lower than the median in 2018 so I expect that we will definitely see a decline in the GDP growth and a subsequent slow down in the US economy.
What does this mean for you?

2019 will be a year of increased volatility due to an expected slow down in the economy and highly priced stocks in the market. It is important to stay calm and plan ahead by eliminating debt (especially “bad debt”) and increasing savings throughout the year to properly position yourself to take advantage of bargain opportunities when they do present themselves.


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