I’ve talked a lot lately here in Market360 about my bullish predictions for the stock market in 2020. But smart investing is not about expectations – it’s about reality. So today, let’s take a realistic, level-headed look at what lies ahead.
Luckily, we already have an excellent idea of what to watch out for in 2020.
First, the stock market’s stunning move higher in 2019 caused bubbles to form under several flagship stocks, including Tesla (TSLA) and Apple (AAPL). The poster stock for overvaluation is Tesla, which is now worth more than either Ford (F) or General Motors (GM), and it trades at 10 times sales and more than 81 times forecasted 2020 earnings. Tesla’s bubble could be “pricked” if the company reports disappointing sales in its upcoming quarterly report.
In the third quarter, Tesla’s sales in the U.S. dropped 39%, while Model 3 sales surged internationally. The company has also missed analysts’ earnings estimates in three of the past four quarters. So, if Tesla reveals another earnings miss or provides poor guidance, the stock could be hit hard—and, in turn, weigh on the broader indices.
Second, the technology, financial and healthcare sectors led the S&P 500 higher in the fourth quarter of 2019. Rising interest rates or a warning from a big technology company could spoil technology and financial stocks’ run higher in 2020. We also need to consider that if Bernie Sanders or Elizabeth Warren have a surprise showing in New Hampshire or on Super Tuesday, it could “spook” healthcare companies.
And, third, ETF spreads could widen excessively like they did in the fourth quarter of 2018. If you recall, many ETFs were trading at massive premiums to their net asset values (NAV) back in 2018. These pricing abnormalities caused the stock market to swing wildly in the fourth quarter of 2018. If this were to happen in 2020, we could see arbitrage traders return and investors’ fears ignite an increase in volatility.
The bottom line is that all good bull markets like to climb a “wall of worry,” and the current bull market is no different. However, I don’t see any major risks to the stock market in 2020, as we’re in the midst of an improving economy and a presidential election year.
Here’s Why It’s Hard Not to Be Optimistic
The U.S. has been re-inventing itself at an accelerated pace. In fact, of our 50 states, more than 30 are very pro-business and are constantly courting companies to relocate. This constant corporate courtship helps promote prosperity, since our states are acting as “economic laboratories.” As a result, productivity is rising, GDP growth has improved, and wages and personal income have increased.
Most importantly, this translates into fundamentally superior stocks that can deliver strong sales and even stronger earnings. I’ve been at this for 40 years, and I’ve always been able to find them. All you need is the right system to sort the wheat from the chaff.
As always, no matter the economic and geopolitical environment, we should try to control our own destiny by making prudent investments. So, when the stock market knee-jerk reacts to the financial media’s pessimistic headlines, we experience less volatility in our stocks.
Bottom line: Leave the likes of Tesla to those who like to roll the dice. Instead, I’m recommending a lesser-known stock that delivers the goods much more consistently.
In Friday’s Breakthrough Stocks Monthly Issue, you’ll hear all about this international logistics company – one that’s set to double its fourth-quarter earnings, year-over-year.
In the third quarter, it did even better: Those earnings surged 215% year-over-year. That was more than a third larger, on a per-share basis, than Wall Street analysts had expected. So, you can see why I’m preparing my recommendation to use this stock as our January New Buy.