New York City, New York Jan 4, 2019 (Issuewire.com) - So, the key question for stock market gurus right now is: Are the recent market selloffs a predictor of an economic correction or just further market weakness in the months ahead. Is it the end of the long term Bull Market?
We believe that, and get ready for a bold prediction here! It is the sign of a big market correction that will last through the first three quarters of 2019 and see major market indexes lose 20 to 25 percent of their value. It will not, however, be a precursor to a significant recession in the United States. What will make this downward move an anomaly, historically speaking, is a unique confluence of events where, only a modest economic slowdown will occur in late 2019, yet the market will treat it like a significant recession. There are two main reasons for this.
The first, is the uncertainty around the Trump administration, that will last months and is just beginning now. The Democrats take control of Congress in January and, although their stated strategy is to not have an impeachment vote, we believe the revelations that will come out from the Mueller probe will be so devastating that the viability of the Trump presidency will be in extreme doubt. The mainstream media will do such a severe job on Trump that the Democrats can sit back and take the high ground. All of this will unfold with increasing intensity and slowly erode Republican support for Trump. Whether or not Trump survives is not the issue. It will create enormous uncertainty and come in waves that will roil the markets with great volatility.
The above may read like a political prediction but it is not. It is what the markets are telling us right now. Sophisticated and powerful investors are starting to program this scenario into their decisions and will only get stronger in their belief and remedial (SELL) actions.
The second and much related factor here is how this will affect both trade policies and domestic spending initiatives. The federal government’s inability to provide fiscal support will only sow further weakness. Trade policy may become even more erratic than it already is. The economy, at least domestically, will not go into a tailspin. This will make this correction a truly great buying opportunity because a new bull market will start late next summer and last well into 2021.
David R. Williams, Research Department, SMS ASSOCIATES
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