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US Stock Market Forecast for 2019 – Key Driver May Be a Strong Labor Market

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Mon, 02/04/2019 - 11:56
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  • The US stock market has started 2019 with strong gains for all major US indices, almost covering the losses it experienced in 2018.

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Contents

Interesting things often occur not only in the cryptocurrency market. The US stock market has started 2019 with strong gains for all major US indices, almost covering the losses it experienced in 2018.

Can this uptrend continue, as many analysts are skeptical about it, being already in the tenth year of a bullish market? We will comment on one key driver that can lead to higher stock market price levels in 2019, as well as discuss the state of the labor market and provide some insights.

This is the year-to-date performance of major US indices in 2019:

Index

Close price as of Friday, Feb. 1, 2019

Performance year-to-date

Dow Jones Industrial Average

25,063.89

+7.57%

Nasdaq Composite

7,263.87

+9.47%

S&P 500

2,706.53

+8.13%

Russell 2000

1,502.05

+11.45%

S&P Midcap 400

1.841,52

+10.83%          

In 2018, the performance of the Russell 2000 was -12.18%. The performance for the Dow Jones, S&P 500, and Nasdaq was -5.63%, -6.24% and -3.88% respectively.

The Russell 2000 underperformed in 2018 and for the first month of 2019 it outperformed the three major US indices. This trend may continue in 2019 as there could be a rotation and portfolio rebalancing from large cap stocks to small cap stocks, seeking excess risk-adjusted returns.

What does the recent US labor market data tell us about the state of the economy?

United States Non-Farm Payrolls

According to Trading Economics, “Nonfarm payrolls in the US increased by 304 thousand in January of 2019, following a downwardly revised 222 thousand rise in December and easily beating market expectations of 165 thousand. Employment grew in several industries, including leisure and hospitality, construction, health care, and transportation and warehousing.”

“There were no discernible impacts of the partial federal government shutdown on the estimates of employment, hours, and earnings from the establishment survey. Instead, the impact of the shutdown contributed to the uptick in the unemployment rate to 4 percent from 3.9 percent as it included furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey.”

It was the second consecutive month that US Non-farm payrolls beat estimates by a large number. The expectations on Jan. 4, 2019 and Feb. 1, 2019 were 177K and 165K respectively. The actual numbers for January and February were 312K and 304K respectively. The US economy added the most jobs in 11 months, and the impact of the partial US government shutdown was minimal to the unemployment rate, which moved higher to 4.0% from 3.9%.

On Friday, Feb. 1, 2019, the US stock market did not react much to the strong labor market numbers. The S&P 500 closed at 2,706.53 points (+0.09%), the Dow 30 closed at 25,063.89 points (+0.26%) and Nasdaq closed at 7,263.87 points, (-0.25%). A strong labor market is one of the most important key drivers for higher economic growth measured by GDP number in 2019. More jobs equal to higher consumer spending, higher demand for goods and services and higher level of economic activity and growth.

This strong uptrend for the US labor market may not last all year long, though. Chances are that most probably it will not as it is prone to cyclicality and as seen from the chart there is a lot of volatility about the actual numbers. But for now, it is encouraging that we can note a very strong trend that has already formed for the US labor market.

Economic factors that could pause the recent uptrend of the US stock market

Some economic factors that are monitored as potential catalysts for the performance of the US stock market in 2019 are:

  • Developments in trade talks between the US and China. Agreements to end the trade wars and levy tariffs should be positive for the US stock market.

  • The path of interest rate hikes. The Fed at its latest monetary policy decision changed the language used, mentioning that it will pause the future interest rate hikes for now, monitoring closely the economic and market conditions. Two interest rate hikes were expected in 2019 before this announcement, and now these two hikes are questionable. A less tightening monetary policy by the Fed is supportive for the stock market.
  • Corporate earnings. Lately several companies have reported better than expected quarterly earnings. To name only two, Apple Inc. (AAPL) and Facebook Inc. (FB). While several analysts warn about a recession in the US economy in 2019, the chances are very slim, almost zero.

A strong US labor market cannot predict higher stock market returns in 2019. But it shows that economic conditions are strong, and acts as a high level of confidence that in a strong economy, the stock market could probably also have very high odds of being strong as well.

About the author

Stavros Georgiadis - CFA Charterholder, Economist, Forex market trader, US stock market financial analyst.

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Sat, 03/28/2020 - 18:45
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  • Crypto investors do not see an alt season coming for many months ahead, as the crypto market corrects.

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Contents

As the bitcoin price fails to see upside momentum, the crypto market is at risk of a deeper pullback in the short-term. While the bitcoin price sustained the $6,000 level for an extended period of time, altcoins have continued to see more downside.

Well-known trader DonAlt said:

“BTC looks like it could go up, down or sideways. Alts look like they could go down, down or down.”

The bitcoin price has been on a decline as of late primarily due to the drop in appetite for high-risk assets. Altcoins present additional risk, which investors are seemingly unwilling to take.

Altcoins seem battered, as crypto market loses tens of billions of dollars

Since March 7, within about three weeks, the valuation of the crypto market has dropped from $264 billion to $175 billion, by around $89 billion.

Consequently, altcoins underperformed against both the USD and bitcoin, as investors flocked to stablecoins like Tether.

After the overnight 5 percent drop in the bitcoin price, technical analysts foresee a steep drop ahead for bitcoin in the near-term. Strong support levels for bitcoin are found at $5,800 and $5,250, according to crypto trader Michael van de Poppe.

Poppe said:

“Brokedown after a distribution pattern and clear rejection of the $6,900 area. On the first support around $6,000-6,100 here. Might be testing $6,400 before continuing to drop, primary level for support is $5,800 and more heavily the $5,250 area.”

The altcoin index perpetual futures on FTX indicates a massive 56 percent drop in the altcoin market within merely 43 days, dropping to levels unseen since 2017.

The altcoin index perpetual futures on FTX drop as crypto market slumps
Source: TradingView.com

Market is exhausted

Similar to the U.S. stock market, based on the performance of altcoins in the past two weeks, it is highly unlikely that the altcoin market sees the so-called “alt season” until the global economy rebounds from the economic consequences of the coronavirus pandemic.

There is a clear lack of buy orders and buying demand across all exchanges and assets within the crypto market, increasing the probability of a larger correction to hit the entire asset class in the near-term.

As financial analyst Koroush AK said:

“Most businesses and individuals still have 1/2 months runway. Assuming handling the virus lasts several months not several weeks. Let's see how many want to be holding, let alone buying, bitcoin when struggling to pay bills and put food on the table.”

The low cash buffer of small businesses, which on average is estimated to be 29 days, leaves the U.S. and European economies at risk of continuous decline in the first half of 2020.

About the author

Joseph Young is an analyst based in South Korea that has been covering finance, fintech, and cryptocurrency since 2013. He has worked with various recognized publications in both the finance and cryptocurrency industries.

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