S&P 500 up 18% in 2019 – Here’s the Plan

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S&P 500 up 18% in 2019 – Here’s the Plan

US and global stocks are quietly having an excellent year.

  • The S&P 500 (SPY) is up +18%.
  • The tech heavy NASDAQ (QQQ) is up +24%.
  • The global stock market (VT) is up +16%.
  • Emerging markets (EEM) are up +13%.

Take a look at the gains below.

Some of our favorite stocks that are widely held by my wealth management clients are up even more.

  • Netflix is up +43%.
  • Paypal is up +33%.
  • Amazon is up +31%.
  • Visa is up +23%.

Take a look below.

These gains have been awesome. Stock investors are having a very good year.

However – as always – when the stock market is strong, a lot of investors get a little nervous. They ask:

  • ‘Are the gains too much too fast?’
  • ‘Will there be a pullback?’

Here’s my take on the action.

Stock market volatility is a normal part of a healthy market. A 5% pullback wouldn’t surprise me. Stocks do look a little overbought in the short run.

But beyond normal short-term volatility I am expecting more gains this quarter and a strong second half of the year because of five key data points.

The Economy is Strong: I keep hearing people talk about a potential recession. #1 recessions are a normal part of the economic cycle so they are nothing to fear. #2 historical data shows that stocks can still do well in a recession.

Do Stocks Do the Worst Before or During Recession?

However there is still no sign of a recession in the US. In fact, the US economy is strong. First quarter GDP just came in at 3.2% – blowing past expectations of 2.3%. For the time being the US economy is at least a year away from a recession and that should go a long way to support stocks.

U.S. Growth of 3.2% Tops Forecasts on Trade, Inventory Boost

Corporate revenue and earnings growth expected to accelerate in the second half of the year: there is no bigger driver of stocks that sales and earnings growth, and both are expected to accelerate in the second half of the year. Take a look at this chart from Zacks Investment Research that shows the projected growth.

China – US trade deal: I am expecting to see a trade deal between the US and China in the next few months or by the end of the year at the latest. Some outlets are speculating a deal could happen within a few weeks. When news of a new deal hits the Street I am expecting stocks to get a very nice pop.

U.S.- China Trade Deal in Sight After Progress on Tariffs, Market Access

The Fed is done raising interest rates and should start lowering next year: The Fed raised interest rates four times last year and now interest rates are deep into a 10-year high. Take a look below.

This is super important – because moving forward I believe the Fed is done raising interest rates through the end of the year and probably longer. In fact, the market is now projecting that the Fed will actually start cutting rates again in 2020. Let me be clear – if we get a rate cut stocks and housing will be ignited. I hope we get it.

Fed done raising rates; cut by end-2020 growing more likely: Reuters poll

Momentum – the chart looks bullish: Stocks have a lot of upward momentum right now and I see another breakout coming.

If the Dow can crack the all-time high (I expect it) – where we see a ‘double top’ – I see the index making another deep run into a new all-time high.

Check out this amazing chart formation below – I see a ‘breakout’ coming.

The Big Picture

Short-term volatility is always part of the stock game. And stocks do look a little overbought in the short run. But my research tells me to expect more gains.

My plan is to stay aggressive. That means keeping cash deployed and quickly deploying new deposits.

If anyone has questions or comments please say hello.

  • mike@vodickagroup.com
  • mikevodicka@gmail.com

Your Investment Partner,

Mike

This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.

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