Outlook 2019: The ‘Bear’ That Keeps On Rolling?

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 29 2018

In this week's Weekly Insights (published in two parts):

-Late Shock: 2018 Is The Annus Horribilis
-Outlook 2019: The 'Bear' That Keeps On Rolling?

-The Curse Of The Magazine Front Cover
-All-Weather Portfolio Observations And Considerations
-Gartman's Rules Of Trading
-Final Weekly Insights For 2018
-Rudi On TV
-Rudi On Tour

[Non-highlighted parts will appear in Part Two on Friday]

Late Shock: 2018 Is The Annus Horribilis

By Rudi Filapek-Vandyck, Editor

One expert voice who should have been mentioned more in my writings throughout the year is Morningstar's head of equities research in Australia, Peter Warnes. From the start of the new calendar, and with most investors and commentators preparing for yet another year of abundant investor cheer, Warnes stuck to his view that 2018 would not be a year of joy for equity investors.

For nine long months it seemed he was just another "bear" who would be forced to eat his words by year end. But momentum did turn, eventually, and when it did there was nothing to keep share prices and indices in positive territory for the year.

As I pointed out two weeks ago, Warnes is anticipating the end of the bull market with a classic -15%-20% retreat. For those who missed it, here's the exact quote:

"The market's enthusiastic response to the US midterm elections does not alter the fact macros are either peaking or deteriorating.

"The bounce in equity markets provides another, possibly the last opportunity, to reduce exposure to stretched equities before a traditional end-of-bull market correction of 15-20% proportions occurs."

All kudos to Warnes for sticking to his contrarian view, even when share markets in the US and in Australia kept on rallying to a new high, seemingly proving him wrong. But I very much doubt whether Warnes was realising at the start of the calendar year how bad exactly things would look eleven months down the track.

And let there be no mistake: 2018 truly and genuinely has proved to be an annus horribilis for investors globally.

Look no further than the 70 asset classes monitored by analysts at Deutsche Bank. As the end of November approaches, 90% of all these assets have posted a negative total return for the year to date. This, according to Deutsche Bank, has never happened before; not in the 1920s or 1930s, not in the 1980s, not even in 2000-2003 or 2008-2009.

Deutsche Bank data goes back to 1901.The previous high was in 1920, when 84% of 37 asset classes were negative. In 2017 only 1% of asset classes delivered a negative return, which was the record low of all times.

Outlook 2019: The 'Bear' That Keeps On Rolling?

Looking back over the past twelve months, most ASX-listed stocks have lost -15%-20% in value; just not all at the same time. As predicted by Morgan Stanley strategists, 2018 saw a Rolling Bear Market sweep through equities, whereby sector after sector was being pummeled, until there was only one left standing.

And when technology growth stocks in the US finally keeled over in September, there was no rotation into those stocks that had previously been hit because the reason why -concerns about global growth outlook and corporate profit margins- equally applied to banks, retailers, car dealerships and producers of energy and industrial materials.

A lot has been written and said about healthcare stocks and High PE growth stocks, and how they have fallen since August, but one easy to make observation is that performance of stocks like CSL ((CSL)) and ResMed ((RMD)) is actually still positive year to date, which is not something that can be said of, say, large mining companies (BHP is an exception), energy producers or major banks.

Now that we have completed the full Roll Over, and every part of the share market has been affected at least once, investors find themselves confronted with a whole lot of questions, and that one big dilemma: what next?

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