(New York)

Markets are ugly right now, but one of the important questions is whether the bottom is really going to fall out. Well, one measure suggests the market is steadier than it seems. Both the put-call ratio and the TRIN ration (ratio of advancing versus declining stocks) both suggest investors aren’t panicking. The put-call ratio is only at 1.04, or 104 puts for every 100 calls, a very modest reading. Additionally, the TRIN is only 1.27, not drastic.

FINSUM: One institutional investor made a good point about the market right now—that it might take some hard economic data to show the market that its fears are real, and thus set the stage for a recovery. In other words, the specter of a recession may be worse for investors than the downturn itself.

(Washington)

Yesterday was a big moment for Fed and the markets. Trump has come down hard on the Fed for its relentless hikes, and the market is in the midst of a very rough period. Additionally, labor figures and inflation data have started to slip. All of that meant the Fed had the option of backing off the pedal on hikes. They didn’t, raising rates another quarter point. The central bank did make the small concession of saying they only planned to hike twice next year instead of the four increases they made this year.

FINSUM: The housing market is bad, the stock market is terrible, credit markets are weak, and inflation is falling. Why is the Fed still hiking?

(Portland)

A lot of investors may be looking for stocks with good value at the moment. Stocks that are badly beaten up, but have good underlying businesses, can be prime buys during adverse market conditions. With that in mind, take a look at Nike. The sportswear giant has shed 16% this quarter and will release earnings later today. Investors’ skepticism will either be proven correct, or wrong. The thing is, the core business looks compelling. The company gave guidance in September that it was expecting currency-neutral revenue to grow 9%. One analyst summarized the stock this way, saying “buy Nike into earnings. Nike sales are gaining momentum and the company is gaining market share across channels and geographies.”

FINSUM: Nike has done an admirable job catching up to rivals recently, as well as in passing on rising costs to consumers. Our instinct is that this is a good buy.

(New York)

This is quite a market storm investors are facing. The rolling bear market has blossomed into a widespread rout with few hopeful signs. One of the scary parts for investors is that the old places to ride out such market storms are not collapsing. In other words, even safe havens aren’t safe. Consumer staples, healthcare, and utilities, all typically bastions of protection during downturns, fell to being this week. Utilities, for instance, fell over 3%, their worst tumble since the 2016 election day.

FINSUM: One analyst sees a silver lining in this. Their argument is that since this is becoming a broad pullback (instead of a rolling bear), it may indicate the worst is near to being over.

(New York)

Goldman Sachs has been sending some seriously mixed messages on stocks. Just a few days ago they published a bearish outlook for 2019. Now the bank’s investment management arm is taking the opposite stance, saying that equities are the place to be. Goldman thinks global growth will continue nicely in 2019, giving support to stocks. It does, however, favor emerging markets over developed equities. The bank still thinks US stocks look attractive after the recent selloff, however.

FINSUM: To be honest it annoys us when one institution puts out some many competing views, but then again, each of the divisions has its own interests. We are not as bullish on stocks as Goldman money management arm.

(Los Angeles)

Real estate has been weak for several months now. Even back in the summer when the economy and markets appeared to be humming along, real estate was one of the sore spots for investors and the Fed. Well, the state of the market is becoming more apparent as new numbers from November show that existing home sales feel 7% from last year. The drop is the largest year over year fall since May 2011. Sales have declined in every month in 2018 bar one.

FINSUM: The worsening real estate market is a bit of a conundrum given the state of the labor market. Leading indicator?

(New York)

Retail is in midst of its biggest selloff since the Financial Crisis. Stocks in the sector have not fallen this hard, this fast, since 2008, and that includes the 2017 panic in retail. Retail stocks had been swept up in a sort of cautious optimism this year that had allowed them to see gains. However, they have gotten caught on the wrong side of fears over the economy and trade war, falling a whopping 17% this quarter alone. The big tumble comes despite a quite bullish Christmas sales forecast.

FINSUM: Retail has a lot of problems facing it right now. Outside of the well-known threat of ecommerce, there is also rising labor costs which are pinching margins at the same time as revenue is getting tighter.

(New York)

Goldman Sachs is sending a big warning to the market, but in its own way, of course. The bank’s strategy team has just published a new note telling investors to get “defensive” given the high uncertainty surrounding the market next year. The bank is uncertain about the direction of the stocks, but is leaning towards them either rising or gaining significantly, with a middle ground seeming less likely than usual. Institutional investors are worried that a recession will arrive in 2020, and historically speaking, the market usually falls by more than 10% in the year preceding such a downturn.

FINSUM: That last point raises the interesting question of whether the recession will arrive in 2019 and this is the 10%+ downturn preceding it. That would actually be better than Goldman’s take.

(New York)

In many ways credit markets are a major bellwether for both the economy and the stock market. And right now, they are sending some poor signals. Investors are afraid of rate hikes and money managers are refusing to bankroll buyouts. As a gauge to how brutal the environment is, consider this: not one company has borrowed in the US high yield market this month! A strategist from Janney Montgomery Scott put the current market environment in perspective: “This is clearly more than year-end jitters … What we’re seeing now is pretty typical for end-of-credit-cycle behaviour”. Yields on junk bonds have climbed over 100 basis points since mid-September.

FINSUM: Junk bonds are likely feeling more heat from the worries about a recession and weakening of earnings (in light of high indebtedness) than they are interest rates.

(New York)

Small caps are in a major rut. The Russell 2000 peaked in August and is now on the verge of a bear market since then. Interestingly, small caps have fallen farther than their larger peers despite the fact that they are insulated from headwinds like the trade war. So how to pick them? The answer is to stay away from indexes and actually choose individual shares whose fundamental outlooks appear brighter than benchmarks. For instance, one fund manager says that investors should choose “quality value stocks” with “with high free-cash-flow yield, low net debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda, and below-market volatility”.

FINSUM: Small caps are a hugely diverse sector and some shares will inevitably have bright outlooks no matter what else may be going on in the market. The issue, of course, is the time and selection necessary to find such shares. Perhaps actively managed small cap value funds are a good bet?