I don’t know where the stock market is going, but I will say this, that if it continues higher, this will do more to stimulate the economy than anything we’ve been talking about today or anything anybody else was talking about.

~Alan Greenspan

The stock market is in an 11 year bull market (unless you count the December 2018 crash as a bear market) yet there is no euphoria to be seen, everyone has predicted the next bear market or recession since 2010 and flows to equities agree with this.

Most funds have gone to the bond market out of the stock market. As each line seems to be the inverse of the other though, the stock market ignored the signs and continued to rally even though fund flows were taken out of the market. This shows how strong the market is.

One main driver of market performance is earnings growth, since higher earnings result in higher dividends and or increased buybacks. Expectations for 2020 earnings are higher than that of 2019. In 2019 earnings did not grow much. But the market has rallied because of sentiment and the Federal Reserve’s change of course. I am expecting that 2020 returns will be fueled by higher earnings growth, increased buybacks, weaker dollar and an expansion in the housing market.

Most analysts expect EPS to grow quarter over quarter in 2020 this could greatly benefit the market since earnings have fallen in 2019. More earnings could mean more dividends and or buybacks.

In 2019 buybacks fell with earnings. In 2020 If earnings grow higher buybacks will follow. The market can Rally from an extra boost of buy backs.

In this business cycle the dollar has been very strong since interest rates of the US are higher than most of the developed economies. This has been a great burden for large companies in the US since most of their revenues are outside of the US many companies report Foreign Exchange losses because of this. Since the Federal Reserve has changed course we can expect to have an excess of dollars in the system which in turn could make the dollar weaker. Large companies which make up the S&P 500 are some of the beneficiaries of a weaker dollar.

This chart shows how the 30 year mortgage rate can be a reliable indicator to forecast future home sales. The chart indicates that in 2020 Q1 home sales should rise. This is great for the overall economy and can indicate a stronger consumer in the economy.

Many people try to forecast a recession, I personally feel you have to have a very very good reason to forecast one. The market goes up 80% of the time so i’d rather be 80% of the time right than be right 20% of the time. Stay Bullish!

disclaimer:

This of course is not investment advice.