With the broad stock market already up over 1.5% this year it seems clear the fear of investors that stocks would decline immediately following New Year’s, was misplaced. Keeping with our contrarian view that stocks would continue to rise after New Year’s, we remained fully invested in our managed accounts. So far, so good.
As we wrote in our last missive, stocks are poised to go higher into 2020. Our expectation is the S&P500 could reach 3,500-3,600. This suggests another 10% upside from current levels. However, we do not expect such a move higher to occur in a straight line. Volatility is ahead.
Keeping with our view that stocks will “take a breather” once the Senate takes on the impeachment trial, we have begun raising cash in our managed accounts. Our view is whether it is the impeachment trial or simply investors deciding to take profits after such a strong beginning to the year, we expect a brief selloff to start soon.
We see this decision as one which will lead to the opportunity to buy high quality stocks at lower prices. To be clear, we are not fearful of a dramatic drop in stocks and will remain “more invested than not” in client accounts. Our effort is simply meant to secure profits in stocks which have performed well and set the stage for investing in the stocks of companies we expect to perform well in the coming year(s).
For 2020, we expect the Federal Reserve to remain on the sidelines and not raise interest rates. This is central to our optimistic view for stocks this year. Additionally, corporate earnings continue to impress, overhangs such as BREXIT and China Trade are fading, and low unemployment continues. All these factors support our positive view on stocks this year.
For 2021, we expect a “downshift” to occur as all the positives just mentioned get overly priced into the market. We expect the Federal Reserve to eventually change its stance and begin to raise rates. So, our optimistic view for stocks is not through “rose colored glasses.” That said, we remain convinced we are in the early innings of a 17-year rally in stocks that will take the S&P500 to over 20,000 in the remaining 14 years. While this may seem astounding to some, it is in line the with the view of anyone who suggested the Dow Jones Industrial Average would rise from 1,000 in 1982 to 11,000 in 2000.
Sincerely,
Kessler Investment Group, LLC