MorningWord 12/31/14: So You Got That Goin For You, Which is Nice

by Dan December 31, 2014 9:40 am • Commentary

So you got that going for you, which is nice.

Per the

If stocks have history on their side, 2015 should be good for a gain.

Next year falls into three separate buckets: It is a pre-presidential election year; it’s the seventh year of a presidential term; and it’s the middle of a decade.

In each of those cases the Dow Jones Industrial Average has averaged double-digit returns going back more than a century, according to Stock Trader’s Almanac.

“As historical patterns continue to assert themselves, the probability of a solid 2015 is improving,” noted the most recent version of the almanac, which is edited by father and son Yale and Jeffrey Hirsch.

The “probability of a solid 2015 is improving”.  That quote is classic.  I suppose if you were playing some sort of financial markets MadLibs you could add almost any random claim and conclude the same.  By no means do I intend to dismiss the takeaway from the truly fine work that the Hirsch’s continue to do on the Stock Trader’s Almanac.   And to be honest, for a number reasons I’d rather be aware of their forecasts than not.

But from where I sit there is one current disconnect in the global economy that could signal a massive monkey wrench for a solid 2015 for stocks, and that is the crash in oil prices.  The general consensus is that lower oil should strengthen global equities, with many pointing to the recent rally to prove that point.  But I suspect seasonality (holidays) had something to do with the uptick we saw in consumer related industries in the U.S. and the realization of lower for longer crude speaks to far worse forecasts for the health of the global economy.

In an attempt to not repeat myself, here were some recent posts detailing my fairly layman views of what I deem to be headwinds or global equities in 2015, despite the “probability of a solid 2015 is improving”:

MorningWord 12/17/14: Shanghaied: don’t be fooled by the recent strength in Chinese equities as the U.S. multi-nationals with significant exposure to the region could be the better “tell”, oh and the data continues to be bad despite stimulus.

MorningWord 12/16/14: Here We Go Again?: a dose of caution on the risk front to some of the older loved ones in my life who have witnessed two peak to trough drawdowns of 50% in the last 14 years and who are at a far less opportune time now to live through another.

MorningWord 12/12/14: What Lies Beneath?: I highlight the darkside of lower for longer oil, a potential credit event (corporate and sovereign), which would clearly far outweigh any perceived benefits of lower gas at the pump.

MorningWord 12/10/14: Crowded House – $BABA $AAPL: with macro worries once again taking center stage, it appeared that some of the world’s most favored equity trades were feeling the affects of a crowded house. These set ups should worry you, as AAPL and BABA at their peaks had almost $1 trillion in market cap between the two stocks alone.  The combination of a risk-environment and (I know the very UN-LIKLEY) event of mis-execution could cause profit taking in these sentiment leaders.

MorningWord 12/5/14: America, F’ Yeah: Nailed this one a few weeks back after the better than expected November Jobs data:  “So ’til year end. I expect stocks to close near highs, bond yields near lows, dollar near highs, and industrial commodities near lows”.  But my sense that this strength would be more technical and have to do more with the calendar than anything else.  The main take-away though is that the U.S. has clearly diverged from the global economy and in 2015 the notion of “de-coupling” will once again take center stage.

MorningWord 12/3/14: Global Weirding: this one just previewed the posts to come through out the month, strong dollar, weak emerging markets, Fed exit of QE, potential for higher rates, lower commodities, the increasingly messy geo-political landscape, and what has appeared to be little positive impact (aside from equity prices) of stimulus in Japan, China at a time when the ECB is seriously contemplating picking g up the baton.

So from purely a mathematical standpoint, risk assets over time have a high probability of “improving” but it would be foolish not to consider the growing divergences among asset classes and geographies as we enter 2015. Also consider the fact that the risk / reward to committing new capital to equities after such a sharp rally in just the last 2 months seems sub-optimal.

So have a safe and happy New Years Eve,  and remember…