This post is comprised of two key parts. We'll start with the views of yours truly, and then move onto your views.
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My outlook for 2020
There are a fair number of aspects I'd like to cover. They are no in particular order. Lets start with...
The Fed, aka... Print Central. As at Jan'1st 2020, the balance sheet stood at $4.173trn.
The fed appear set to continue t-bill buying of around $60bn each month until at least end March.
Two s/t scenarios...
- Equities break/spiral to sp'3000/2900s, the fed are spooked, and continue to print across the spring and into the summer.
- Equities continue to battle upward to the 3300/400s into the spring. The fed halt QE, the market eventually spirals to 3000/2900s, with the fed then resuming QE.
It should be obvious that the fed are terrified the 'everything bubble' might burst. They are certainly feeling the pressure from the US President, whom continues to deem US equity prices a key indicator of his success or failure.
Further, we have a mainstream that are twitchy on ANY degree of equity cooling. Tom Lee of Fundstrat correctly called it for what it is... a market that sees even a 5% drop as 'Armageddon'.
I would just add, interest rates can be expected to be cut twice more this year. The fed/Powell made it crystal clear at the Dec'2019 FOMC, they see no realistic scenario where rates will be raised across the mid term.
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Stocks for 2020?
The following three lists are periodically updated, and I will endeavour to highlight them via Twitter.
The core list
Tier 1: $MSFT $JPM $AAPL $GOLD $PFE
Tier 2: $INTC $BAC $TGT $NEM $MRK
Tier 3: $CSCO $V $HD $AEM $BMY
Tier 4: $NVDA $MA $DIS $CAT $UNH
Tier 5: $AMD $PYPL $LULU $CVX $GILD
I'd like to give particular attention to AMD.
Thursday's break above the tech bubble historic high of $48.50 is a monstrously bullish event. Psy'50 could be hit as early as next week, and regardless of any cooling wave with the main market, I'd look for AMD to challenge giant psy' of $100 within 12/18mths.
The speculative list
Tier 1: $UAL $LK $BABA $SQ $PAAS
Tier 2: $DAL $ROKU $JD $RIG $CDE
Tier 3: $AAL $FCX $TWTR $AMRN $WPM
Tier 4: $JBLU $TECK $EA $ZM $AG
Tier 5: $SAVE $SCCO $ATVI $SPCE $HL
I will just note, I really like LK, AMRN, and the various silver miners.
The Dow components
Tier 1: $MSFT $JPM $AAPL $DIS $PFE
Tier 2: $INTC $V $HD $JNJ $MRK
Tier 3: $CSCO $AXP $CAT $PG $UNH
Tier 4: $MCD $GS $CVX $WMT $KO
Tier 5: $MMM $VZ $XOM $NKE $UTX
Tier 6: $TRV $DOW $BA $IBM $WBA
IBM continues to see broadly falling revenue, whilst Walgreens might be taken private (to be replaced by Target?).
I would like to add that I see Boeing (BA) as semi-toxic.
I don't say it lightly, but a company that tries to fix an inherent (unbalanced 737MAX plane) hardware issue, via a software update, is not a company I can respect, or whose planes I would fly on.
Price structure for the stock is a giant H/S formation, with a neckline currently around 320. Any price action <300 would merit alarm bells. Things would turn decisive <285, and that would offer 140. Is Boeing the next GE of the Dow? Maybe.
What I am sure of, whilst the 737MAX will be flying once again this year, if there are any further pilot reports of difficulties, the plane might be grounded.... permanently. The implications of that would be monstrously problematic for Boeing.
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Economy:
The US economy can be expected to continue to fair better than almost anywhere else, not least Europe. Ongoing Fed QE and US Govt' deficit spending continues to help mask some of the structural problems. Capital inflows continue to give the US economy an extra kick upward. There is zero reason to expect that to end any time soon.
Commodities:
WTIC - broader demand/supply issues still lean weak, but oil printed the $64s on Friday, largely due to geo-political concerns. Next soft target are the $66s. Is WTIC $100 possible this year? One of the ultimate 'doomer' scenarios would be if the Straits of Hormuz are closed off. For now, the US fleet (and others) remain there to prevent that.
Gold - The Sept' high of $1566s is set to be taken out, perhaps next week, and then onward to the 1650/1750 zone. A new historic high (>1923s) won't be easy, but Fed QE, and further geo-political upset will help. Whilst a cooler USD would inherently be bullish for gold, its not a necessity for new multi-year highs. Finally, as Friday showed, the dollar and gold can climb together. Key stocks: GOLD, NEM, AEM, AU
Silver - a push to the 2016 high of $21.23 is on track by late spring. Any price action >22.00 would be massively bullish for the mid/long term, Key stocks: AG, PAAS, WPM, CDE, HL
Copper - where gold and silver go, copper can be expected to follow. However, it will very likely be the laggard of the trio. Ongoing price action remains broad chop. Things only turn interesting >$3.00. Key stocks, FCX, TECK, SCCO
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The mainstream targets...
Consensus is expecting nothing <3k, but neither anything much above 3500/600.
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Your views
First, many thanks to those that voted, and who retweeted some of the polls, to help garner a better sample size!
Broadly inline with mainstream consensus. Its notable only 22.4% of you expect a settlement <3k.
A monstrous majority expect Trump to win a second term, and yours truly agrees, as I don't see the Democrat party able to select a nominee who could challenge Trump.
Its surprising that 29.5% of you expect rates to be net higher. Yours truly expects at least another two rate cuts this year.
Roughly, two thirds do not believe the US economy will fall into recession, and yours truly agrees.
I believe ALL three asset classes will be net higher for 2020, and I would agree to Gold being the leader.
I would agree with the 59.9% of you that believe the USD will be net lower to some degree.
Clearly, there is a major element of US partisan voting here. Regardless, I would agree with the 42.4% that voted for the Democrats.
A massive 84.2% of you believe the Fed's balance sheet will hit $5trn this year. It could be close. At the current rate of increase, the balance sheet will be around 4.8/4.9trn by year end.
Almost half of you believe WTIC will not print any higher than $80.00. I can understand that, but the middle east remains a tinderbox, with recent events a reminder.
61% of you believe Gold will break a new historic high this year. Certainly, its viable. I would see the 1800s as very probable, but I don't see >1923s this year. I'd imagine a great deal of resistance from the low 1800s upward, and some will no doubt be calling for a double top.
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Looking ahead
It will be the first full trading week of the year/decade. I would expect more active price action on higher volume, as everyone is back up and running.
Earnings:
M -
T -
W - STZ, BBBY, WBA, LEN
T - KBH, AYI
F - INFY
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Econ-data:
M - PMI serv'
T - Intl' trade, factory orders, ISM serv'
W - ADP jobs, EIA Pet', Consumer credit (3pm)
T - Weekly jobs, EIA NG', Fed' bal' sheet (4.30pm)
F - Monthly jobs, wholesale trade
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| 3.53pm GMT, dusk in the London metropolis |
Final note
So... its 2020, and we've already seen a little drama. For now... thats all it is. Broadly, the US economy is still ticking along, with equities m/t bullish, helped by Fed QE.
Q. What is my year end guess for the SPX? I'd look for something in the 3600/700s. If I had to pin a number, maybe 3713.
Again though, if any monthly close under the key monthly 10MA (currently spx'3016), and I'd consider the m/t bullish trend broken. For now, that doesn't look likely. Instead, whilst I expect a washout to 3000/2900s, I would have to see a cooling wave as such.
Its good, and somewhat fun to have targets, but more than anything, its important to be flexible. If there is anything I'm right about... its the latter.
I shall end with thanks to my mini legion of subscribers, and all those who regularly comment, request a chart, and retweet my work on Twitter. It means a lot.
Yours, still alive... in the 2020s.
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Have a good weekend
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*the next post on this page will likely appear 5pm EST on Monday.