2019 Year-End Review and What to Watch for in Global Markets in 2020
BVA Value Momentum Portfolio Strategy - Year-to-Date Performance as of December 31, 2019:
Year-to-date, the BVA Value Momentum Portfolio Strategy return is up 161.36% compared to an increase of 28.64% for the Morningstar US Market Index.
The stocks on the strategy list currently have a price to fair value of .72 vs 1.04 for the Morningstar coverage universe.
Since the 2008 financial crisis and ensuing great recession, central banks around the world, including the US Federal reserve, have flooded the markets with trillions of dollars of cash, simply by printing money. This has provided the liquidity to drive markets in the US to all-time record highs. In many cases stocks have risen to levels which are far beyond their estimated fair value.
These actions by the US Federal reserve and other central banks have served to support both the economy and markets around the world. These actions, however, have also resulted in a global level of debt far higher than anything seen before in history. Given this high level of debt, it remains to be seen how markets will fare during an economic downturn.
My BVA Value Momentum Portfolio Strategy calls for investing in those stocks which have a price that is significantly below their estimated fair value.
The methodology also provides a systematic exit strategy in the event of a decline in the individual stock, or as a result of a general market decline.
Looking at the more broad US markets for 2019,the Dow Jones Industrial Average was up 22.03%, the S&P 500 was up 28.59%, the NASDAQ 100 was up 37.20%, and the Russell 2000 was up 23.05%.
In Europe, the UK FTSE index was up 13.99%, the German DAX index was up 24.15%, and the French CAC 40 index was up 27.48%.
ln Asia, the Japanese NIKKEI 225 index was up 17.80%, the Shanghai index was up 23.72%, the Korean Kopsi index was up 9.34%, and the Hong Kong Hang Seng Index was up 12.22%. The Indian SENSEX index was up 13.79%, while the Australian ASX 200 index was up 20.23%.
In commodities, crude oil was up 30.54%, while Brent crude was up 20.61% for the year.
In precious metals for the year Gold was up 18.13%, Silver was up 14.88%, and Platinum was up 21.22%.
In agricultural commodities, Soybeans were 6.45%, Wheat was up 10.36%, and Corn was up 3.3%. Other leading advancers were Rice up 30.24%, Palm Oil up 33.62%, Cheese up 48.66%, Milk up 39.90%, Coffee up 30.35%, and Lumber up 23.19%.
In livestock, beef was up 32.05%, while lean hogs advanced 15.46%, and poultry was up 18.10%.
In industrial metals, Rhodium was up 145.94%, Palladium was up 54.54%, Nickel was up 29.27%, and Iron Ore was up 28.67%. Declining Industrial metals included Coal down 31.20%, and Soda Ash down 26.45%.
In the commodity-related indexes, the Baltic Dry was down 14.98%, the CRB index was up 11.35%, in the S&P GSCI index was up 16.5%.
In Bond Markets, the 10-year US Treasury closed at a yield of 1.92%, down minus 0.74% for the year. The UK 10-year closed at 0.83% down minus 0.39% for the year, the Japanese 10-year closed at minus .02% up 0.02% for the year, and the German 10-year closed at minus 0.19% down minus 0.36% for the year.
The DXY US Dollar Index ended the year at 97.093 up 0.28% for the year.
What I'm Watching in Global Markets in 2020:
The trade war between the United States and China, which is entering its third year, will continue to weigh on global markets in 2020. Although the two countries are likely to sign the "Phase One" trade deal early in January, investors remain cautious and see it more like a truce, unable to solve main trade issues. The Chinese economy is in worse shape as the growth has been slowing down since the first round of tariffs were imposed by the US in February 2018. The US economy is still in good shape, but signs of downshifting are becoming more evident as uncertainty spreads to manufacturers, exporters and companies in general. The International Monetary Fund has estimated that the tariffs imposed by both sides will shave approximately seven hundred billion dollars of value off of the world economy next year. This is equivalent to 0.8% of gross domestic product. Other fronts of engagement, most notably North Korea, Hong Kong, the Middle East and Taiwan could also flare up at any moment.
Donald Trump will continue to lean on the Federal Reserve to keep interest rates low as he prepares for re-election. The key fed funds target rate is expected to remain in the 1.50% to 1.75% range, depending largely on what policy choices Trump makes between now and the election.
If Trump chooses to avoid escalating the trade war, then US inflation is likely to rise under the influence of a tight labor market and a 1.2 trillion dollar budget deficit.
If, however, Trump feels the need to rally voters with aggressive actions toward China, the EU, Mexico, Canada or elsewhere, then the Fed may have to do another rate cut.
Post-Brexit issues with the UK will frustrate the European Central Bank's efforts to revive the euro zone economy.
Trade uncertainty will continue to weigh on the European economy, frustrating the European Central Bank's exit from its policy of negative interest rates, putting further pressure on the profitability of the Eurozone banking system, and keeping a cap on the euro in the foreign exchange markets.
Trade hazards are many, and ways around them are few. Higher US tariffs on China have deterred business investment in both countries, hitting Eurozone exports of capital goods. The EU is also the obvious next target for any newt trade offensives if the Trump administration declares a truce with China ahead of the election.
In addition, there is the fate of relations between the EU and UK which will leave the block at the end of January.
Prime Minister Boris Johnson has signaled he wants a trade deal by the end of 2020, when the transitional phase of his withdrawal agreement is set to end. That sets the stage for some fast trade negotiating or a trade agreement that will be done in stages, each stage doing just enough to stop a disorderly disruption of trade and financial flows between the two.
The threat of such a scenario will be constantly depressing confidence and demand, ensuring that Sterling struggles to build on the gains of the last quarter.
Oil prices may fall unless OPEC and Russia do more to reduce production. The global oil market faces a difficult start to 2020, and sluggish world growth continues to ensure that supply grows faster than demand.
There was anagreement earlier this month by OPEC and Russia to cut supply by a further net 500,000 barrels a day from January through March. Even so, the International Energy Agency says global oil stockpiles could grow at 700,000 barrels a day in the first quarter of the year.
The US Energy Information Administration's prediction is for an average crude price of just over $55 per barrel for the US benchmark West Texas Intermediate next year, and $60.51 per barrel for the global benchmark Brent.
At these prices, business for many US shale producers will remain difficult. Meanwhile, the bigger integrated oil companies face higher cost of capital as they deal with climate change risks.
Government forecasts indicate that us oil production growth is set to slow to 900,000 barrels per day next year. That's down from 1.3 million barrels per day this year and 1.6 million barrels per day in 2018. For the first time in at least three years, the US will not meet all incremental global demand on its own.
OECD Composite Leading Indicators (CLIs)
Each month, the OECD (Organization for Economic Cooperation and Development) publishes its widely followed Global Composite Leading Indicators (CLIs). These indicators are designed to anticipate turning points in economic activity relative to trend 6 to 9 months ahead.
The last report, published in December, indicates that the CLIs continue to point to below trend growth in all major OECD countries and most large emerging economies.
The year-on-year percent change in CLIs is down - 0.82 for the OCED area as a whole.
The Euro-Area is down 1.05, the United States is down 1.43, Japan is down 1.07, Germany is down 1.85, China is up 0.27, and India is down 1.46.
Looking ahead to 2020, the sluggish CLI numbers are reflected in the following forecasts, provided by Trading Economics. (Trading Economics provides forecasts for major market indexes based on its analysts expectations and proprietary global macro models. Forecasts are made on a best efforts basis, and are not investment recommendations).
Global Stock Markets
Trading Economics expects Global stock markets to fall in 2020 on disappointing economic data and high oil prices caused by rising geopolitical tensions in the middle east.
Commodities
Trading Economics expects prices for most commodities to rise in 2020 on inflation concerns triggered by a tight labor market and high oil prices, possibly, caused by a rise in geopolitical tensions in the middle east between Iran and Saudi Arabia.
Bonds
Trading Economics expects yields from government bonds to rise in 2020 on inflation concerns triggered by tight labor costs and high oil prices, possibly caused by a rising geopolitical tensions in the middle east.
Currencies
Trading Economics expects the US dollar to gradually appreciate against other currencies in 2020.
United States
The Dow Jones Industrial Average which closed at 28,538.44 in 2019 is forecast to trade around 27,399 by the fourth quarter of 2020. The DXY US Dollar Index which closed at 97.09 is expected to trade around 97.33 by the fourth quarter of next year. The 10-year US government bond yield is expected to go from 1.92% to 2.16% by the end of next year. The GDP growth rate which was 2.1% in 2019 is expected to be around 1.8% by the fourth quarter of 2020. The inflation rate is expected to go from 2.10% to 1.7%. The unemployment rate is expected to go from 3.50% to 3.90%.
International Markets
The Euro-Area stock market it's expected to go from 3736 at the end of 2019 to 3498 at the end of 2020.
The Japanese NIKKEI 225 is expected to go from 23,657 to 22,122.
The Hong Kong Hang Seng Index is projected to decline from 28,202 to 26,744 next year.
The CRB commodity index is expected to decline to 188.93 from 196.64.
At this point I'd like to extend my very best wishes to you and yours for a happy and prosperous New Year.
BE SURE TO VISIT MY WEBSITE TO SUBSCRIBE AND ASK FOR A FREE COPY OF THE "BULL VALLEY ADVISOR" STOCK MARKET NEWSLETTER:
www.bullvalleyadvisors.com
Subscribers to the "Bull Valley Advisor" stock market newsletter receive 12 monthly email newsletters showing the current 25 stock holdings with individual returns since purchase; a historical list of gains or losses for each stock sold and a presentation of portfolio returns year-to-date and since the start of the portfolio.
The Strategy consists of 25 individual stocks trading on the US market exchanges. The strategy calls for investing in stocks trading at a significant Price to Fair Value discount. Fair Value is calculated using a 5-year discounted cash flow method. When added to the list, stocks must have both daily and weekly positive price momentum. Stocks are considered for sale if the current price significantly exceeds the current estimated fair value, and/or the daily and weekly price momentum turns negative. Stocks may also be considered for sale when more attractive opportunities are presented.
The above BVA Value Momentum Portfolio Results represents the historical portfolio returns since the inception date of January 2, 2019. The results depict the actual timing of the purchases and sales in the portfolio. The initial Portfolio started with an investment of 25 stocks in the amount of $40,000 each representing 4% of the initial portfolio for a total initial portfolio investment of $1,000,000. The proceeds from position sold are reinvested in new positions, with the total number of positions remaining at 25. However, any one position may become more or less than 4% of the portfolio, depending upon the performance of each individual stock. If 25 suitable stocks cannot be found, the sales proceeds will be invested in Exchange-Traded Funds (ETFs), trading significantly below their highs. If neither suitable stocks or ETFs can be found, sale proceeds will be invested in short-term US Treasury Bills, until such time as suitable stocks or ETFs become available.
YOU CAN ALSO LISTEN TO MY LATEST PODCAST AT:
anchor.fm/len-martinez-phd-cpa
Thanks and please stay tuned for more in my next updates.
Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor" newsletter should not be considered as investment advice, or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, Stockcharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not a RIA. The data in this report is presented for informational purposes only and should not be considered investment advice or an offer to buy or sell securities.
Year-to-date, the BVA Value Momentum Portfolio Strategy return is up 161.36% compared to an increase of 28.64% for the Morningstar US Market Index.
The stocks on the strategy list currently have a price to fair value of .72 vs 1.04 for the Morningstar coverage universe.
Since the 2008 financial crisis and ensuing great recession, central banks around the world, including the US Federal reserve, have flooded the markets with trillions of dollars of cash, simply by printing money. This has provided the liquidity to drive markets in the US to all-time record highs. In many cases stocks have risen to levels which are far beyond their estimated fair value.
These actions by the US Federal reserve and other central banks have served to support both the economy and markets around the world. These actions, however, have also resulted in a global level of debt far higher than anything seen before in history. Given this high level of debt, it remains to be seen how markets will fare during an economic downturn.
My BVA Value Momentum Portfolio Strategy calls for investing in those stocks which have a price that is significantly below their estimated fair value.
The methodology also provides a systematic exit strategy in the event of a decline in the individual stock, or as a result of a general market decline.
Looking at the more broad US markets for 2019,the Dow Jones Industrial Average was up 22.03%, the S&P 500 was up 28.59%, the NASDAQ 100 was up 37.20%, and the Russell 2000 was up 23.05%.
In Europe, the UK FTSE index was up 13.99%, the German DAX index was up 24.15%, and the French CAC 40 index was up 27.48%.
ln Asia, the Japanese NIKKEI 225 index was up 17.80%, the Shanghai index was up 23.72%, the Korean Kopsi index was up 9.34%, and the Hong Kong Hang Seng Index was up 12.22%. The Indian SENSEX index was up 13.79%, while the Australian ASX 200 index was up 20.23%.
In commodities, crude oil was up 30.54%, while Brent crude was up 20.61% for the year.
In precious metals for the year Gold was up 18.13%, Silver was up 14.88%, and Platinum was up 21.22%.
In agricultural commodities, Soybeans were 6.45%, Wheat was up 10.36%, and Corn was up 3.3%. Other leading advancers were Rice up 30.24%, Palm Oil up 33.62%, Cheese up 48.66%, Milk up 39.90%, Coffee up 30.35%, and Lumber up 23.19%.
In livestock, beef was up 32.05%, while lean hogs advanced 15.46%, and poultry was up 18.10%.
In industrial metals, Rhodium was up 145.94%, Palladium was up 54.54%, Nickel was up 29.27%, and Iron Ore was up 28.67%. Declining Industrial metals included Coal down 31.20%, and Soda Ash down 26.45%.
In the commodity-related indexes, the Baltic Dry was down 14.98%, the CRB index was up 11.35%, in the S&P GSCI index was up 16.5%.
In Bond Markets, the 10-year US Treasury closed at a yield of 1.92%, down minus 0.74% for the year. The UK 10-year closed at 0.83% down minus 0.39% for the year, the Japanese 10-year closed at minus .02% up 0.02% for the year, and the German 10-year closed at minus 0.19% down minus 0.36% for the year.
The DXY US Dollar Index ended the year at 97.093 up 0.28% for the year.
What I'm Watching in Global Markets in 2020:
The trade war between the United States and China, which is entering its third year, will continue to weigh on global markets in 2020. Although the two countries are likely to sign the "Phase One" trade deal early in January, investors remain cautious and see it more like a truce, unable to solve main trade issues. The Chinese economy is in worse shape as the growth has been slowing down since the first round of tariffs were imposed by the US in February 2018. The US economy is still in good shape, but signs of downshifting are becoming more evident as uncertainty spreads to manufacturers, exporters and companies in general. The International Monetary Fund has estimated that the tariffs imposed by both sides will shave approximately seven hundred billion dollars of value off of the world economy next year. This is equivalent to 0.8% of gross domestic product. Other fronts of engagement, most notably North Korea, Hong Kong, the Middle East and Taiwan could also flare up at any moment.
Donald Trump will continue to lean on the Federal Reserve to keep interest rates low as he prepares for re-election. The key fed funds target rate is expected to remain in the 1.50% to 1.75% range, depending largely on what policy choices Trump makes between now and the election.
If Trump chooses to avoid escalating the trade war, then US inflation is likely to rise under the influence of a tight labor market and a 1.2 trillion dollar budget deficit.
If, however, Trump feels the need to rally voters with aggressive actions toward China, the EU, Mexico, Canada or elsewhere, then the Fed may have to do another rate cut.
Post-Brexit issues with the UK will frustrate the European Central Bank's efforts to revive the euro zone economy.
Trade uncertainty will continue to weigh on the European economy, frustrating the European Central Bank's exit from its policy of negative interest rates, putting further pressure on the profitability of the Eurozone banking system, and keeping a cap on the euro in the foreign exchange markets.
Trade hazards are many, and ways around them are few. Higher US tariffs on China have deterred business investment in both countries, hitting Eurozone exports of capital goods. The EU is also the obvious next target for any newt trade offensives if the Trump administration declares a truce with China ahead of the election.
In addition, there is the fate of relations between the EU and UK which will leave the block at the end of January.
Prime Minister Boris Johnson has signaled he wants a trade deal by the end of 2020, when the transitional phase of his withdrawal agreement is set to end. That sets the stage for some fast trade negotiating or a trade agreement that will be done in stages, each stage doing just enough to stop a disorderly disruption of trade and financial flows between the two.
The threat of such a scenario will be constantly depressing confidence and demand, ensuring that Sterling struggles to build on the gains of the last quarter.
Oil prices may fall unless OPEC and Russia do more to reduce production. The global oil market faces a difficult start to 2020, and sluggish world growth continues to ensure that supply grows faster than demand.
There was anagreement earlier this month by OPEC and Russia to cut supply by a further net 500,000 barrels a day from January through March. Even so, the International Energy Agency says global oil stockpiles could grow at 700,000 barrels a day in the first quarter of the year.
The US Energy Information Administration's prediction is for an average crude price of just over $55 per barrel for the US benchmark West Texas Intermediate next year, and $60.51 per barrel for the global benchmark Brent.
At these prices, business for many US shale producers will remain difficult. Meanwhile, the bigger integrated oil companies face higher cost of capital as they deal with climate change risks.
Government forecasts indicate that us oil production growth is set to slow to 900,000 barrels per day next year. That's down from 1.3 million barrels per day this year and 1.6 million barrels per day in 2018. For the first time in at least three years, the US will not meet all incremental global demand on its own.
OECD Composite Leading Indicators (CLIs)
Each month, the OECD (Organization for Economic Cooperation and Development) publishes its widely followed Global Composite Leading Indicators (CLIs). These indicators are designed to anticipate turning points in economic activity relative to trend 6 to 9 months ahead.
The last report, published in December, indicates that the CLIs continue to point to below trend growth in all major OECD countries and most large emerging economies.
The year-on-year percent change in CLIs is down - 0.82 for the OCED area as a whole.
The Euro-Area is down 1.05, the United States is down 1.43, Japan is down 1.07, Germany is down 1.85, China is up 0.27, and India is down 1.46.
Looking ahead to 2020, the sluggish CLI numbers are reflected in the following forecasts, provided by Trading Economics. (Trading Economics provides forecasts for major market indexes based on its analysts expectations and proprietary global macro models. Forecasts are made on a best efforts basis, and are not investment recommendations).
Global Stock Markets
Trading Economics expects Global stock markets to fall in 2020 on disappointing economic data and high oil prices caused by rising geopolitical tensions in the middle east.
Commodities
Trading Economics expects prices for most commodities to rise in 2020 on inflation concerns triggered by a tight labor market and high oil prices, possibly, caused by a rise in geopolitical tensions in the middle east between Iran and Saudi Arabia.
Bonds
Trading Economics expects yields from government bonds to rise in 2020 on inflation concerns triggered by tight labor costs and high oil prices, possibly caused by a rising geopolitical tensions in the middle east.
Currencies
Trading Economics expects the US dollar to gradually appreciate against other currencies in 2020.
United States
The Dow Jones Industrial Average which closed at 28,538.44 in 2019 is forecast to trade around 27,399 by the fourth quarter of 2020. The DXY US Dollar Index which closed at 97.09 is expected to trade around 97.33 by the fourth quarter of next year. The 10-year US government bond yield is expected to go from 1.92% to 2.16% by the end of next year. The GDP growth rate which was 2.1% in 2019 is expected to be around 1.8% by the fourth quarter of 2020. The inflation rate is expected to go from 2.10% to 1.7%. The unemployment rate is expected to go from 3.50% to 3.90%.
International Markets
The Euro-Area stock market it's expected to go from 3736 at the end of 2019 to 3498 at the end of 2020.
The Japanese NIKKEI 225 is expected to go from 23,657 to 22,122.
The Hong Kong Hang Seng Index is projected to decline from 28,202 to 26,744 next year.
The CRB commodity index is expected to decline to 188.93 from 196.64.
At this point I'd like to extend my very best wishes to you and yours for a happy and prosperous New Year.
BE SURE TO VISIT MY WEBSITE TO SUBSCRIBE AND ASK FOR A FREE COPY OF THE "BULL VALLEY ADVISOR" STOCK MARKET NEWSLETTER:
www.bullvalleyadvisors.com
Subscribers to the "Bull Valley Advisor" stock market newsletter receive 12 monthly email newsletters showing the current 25 stock holdings with individual returns since purchase; a historical list of gains or losses for each stock sold and a presentation of portfolio returns year-to-date and since the start of the portfolio.
The Strategy consists of 25 individual stocks trading on the US market exchanges. The strategy calls for investing in stocks trading at a significant Price to Fair Value discount. Fair Value is calculated using a 5-year discounted cash flow method. When added to the list, stocks must have both daily and weekly positive price momentum. Stocks are considered for sale if the current price significantly exceeds the current estimated fair value, and/or the daily and weekly price momentum turns negative. Stocks may also be considered for sale when more attractive opportunities are presented.
The above BVA Value Momentum Portfolio Results represents the historical portfolio returns since the inception date of January 2, 2019. The results depict the actual timing of the purchases and sales in the portfolio. The initial Portfolio started with an investment of 25 stocks in the amount of $40,000 each representing 4% of the initial portfolio for a total initial portfolio investment of $1,000,000. The proceeds from position sold are reinvested in new positions, with the total number of positions remaining at 25. However, any one position may become more or less than 4% of the portfolio, depending upon the performance of each individual stock. If 25 suitable stocks cannot be found, the sales proceeds will be invested in Exchange-Traded Funds (ETFs), trading significantly below their highs. If neither suitable stocks or ETFs can be found, sale proceeds will be invested in short-term US Treasury Bills, until such time as suitable stocks or ETFs become available.
YOU CAN ALSO LISTEN TO MY LATEST PODCAST AT:
anchor.fm/len-martinez-phd-cpa
Thanks and please stay tuned for more in my next updates.
Len Martinez is a Financial Consultant. Information in the "Bull Valley Advisor" newsletter should not be considered as investment advice, or an offer to buy or sell securities. Data is derived from sources considered to be reliable including Morningstar, Stockcharts.com, YAHOO Finance, FINVIZ, TipRanks, Investing.com, ECRI, OECD, gurufocus, Crestmont Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez is not a RIA. The data in this report is presented for informational purposes only and should not be considered investment advice or an offer to buy or sell securities.
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