Market Jeopardy!
The 4th quarter saw the S&P 500 drop (20.2%) from its peak on 9/24 to the bottom on 12/26. Though Raymond James Chief Investment Strategist Jeff Saut had expected some softness in the fall, a decline of this magnitude, which is usually associated with a recession, had not been anticipated.[1] As you can see below, my Leading Indicators are not signaling a recession. They currently stand at 12.5, with 0 being the best score and 100 the worst.[2] All the negatives come from the housing industry, which is a volatile component, and which, at the moment, is giving signs of possibly moving back into positive territory. Prior to each of the 3 previous recessions, the score was north of 80.
If we don’t see a recession on the horizon, what could possibly have caused the large decline at the end of the last year? The punditry was buzzing with possible causes during the decline, which included:
- The Mueller investigation
- Slowing overseas economic growth
- Hedge fund selling
- Chinese trade tiff and the arrest of Huawei CFO in Canada
- Government shutdown
- Dow Theory Sell Signal
- Federal Reserve policy
- Housing market softness
- Inverted yield curve
I’ll reveal what I believe to be the two best answers next week. In the meantime, email me at don.harrison@raymondjames.com with your 2 best guesses as to what my answers will be. First 5 correct answers get their choice of a Capitalist Investment hat, or a Harrison Country hat or t-shirt. Unlike Jeopardy!, you won’t be penalized for not posting your answers in the form of a question! Autographs on Harrison Country paraphernalia by request.
[1] Raymond James Investment Strategy, Being Wrong, Jeff Saut, 9/10/18 https://myrjnet.rjf.com/ResearchandPlanning/InvestmentStrategy/MarketandEconomicCommentary/MarketStrategybyJeffSaut/Pages/default.aspx
[2] This graph looks a bit different than the one I published in our previous blog, Leading Indicators (http://capitalistinvestment.com/blog/2018/11/01/Leading-Indicators/). That graph was updated yearly; this one is quarterly. In addition, I’ve tweaked some of the indicators which gives it slightly different scores.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Don Harrison and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involes risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. All investments are subject to risk.
