Review 2018 - 2019 Forecast
2018 wasn't as great and easy of a year as 2017 was. Lots of uncertainty led to a big portion of volatility, and important market corrections in March, October and December.
For 2019, I expect an equally difficult year, for the same reasons that 2018 started to become difficult. There are many indicators leading to believe that a bear market is still not very far away... Spread between long term debt (US 10Y) and short term debt (US 2Y) is small, almost negative (inverted yield); unemployment levels are low which leads to increase in wages and decreases in profitability, economic growth is slowing down worldwide, Brexit turmoil, very high P/E ratios and overvalued stocks in general, climate change and the related social turmoil, etc... But more importantly to my opinion is the massive debt that has been accumulated as a result of the low interest rates. With raising interest rates, this massive debt could easily become the trigger of a next massive correction and/or initiate a bear market.
But it is not all negative. The Fed has been taking a more sensitive approach in that it would increase interest rates less rapidly as was originally thought, the ECB maintains its quantitative easing at a constant level, US-China talks are going on, European countries are looking for measures to counter negative impacts as a result of the Brexit, corporate profits are still sound, etc...
Good or bad signs, one thing is sure. Because most investors —real or algorithmic— are suspiciously watching any of those signs above —particularly the negative ones—, any time a politician does as much as sneeze or something (in)significant occurs, it sends the financial markets into intensive care. Hence resulting in to quite some volatility.
The positive rally during this past month is mostly due to the Fed softening on its approach on rising interest rates. And even though market conditions don't look bright ahead, some sectors offer promising growth. I still believe we are nearing the end of an economic cycle (I sincerely recommend everyone to watch this video regarding this topic).
That is why I have been divesting my tech-positions into sectors which traditionally perform better in a late-cycle phase, such as energy, utilities, healthcare and consumer staples. Hence my selection during my last rebalancing exercise, including $ECL , $DAR , $AES , $SEDG , $NEE and $WM . My focus on Cannabis Stocks —like $CRON & $ACBFF — as an innovative alternative to the traditional healthcare & pharmaceuticals seem to have been a particular good choice also, with $CRON currently at +70%.
My next rebalancing exercise is due for mid-March, and although the selection of stocks will depend on the conditions by then, I have a strong feeling I will maintain a similar selection in hand as I have now.
This being my second year on eToro, I have to admit that I learned a lot this year. Whereas 2017 was definitely a better year in terms of results, 2018 has taught me to always remain invested for the long run —as I explain why in this article. I would like to thank you all for your trust in me, especially to the copiers who remained with me during a difficult 2018.
eToro is not all about the results, but also about the social and the learning. I remember from my first days as an investor that I still had a lot of questions and doubts, and I imagine some people might have that same feeling. As an eToro investor, I am not only here to deliver results, but also be there for you to answer your questions and help you out! So if you have anything you’re wondering about, don’t hesitate and shoot!
Looking forward to an eventful 2019! Merry x-mas and a happy New Year!