Fighting The Flu Bug

I've been dealing with a bout of the flu yesterday and today so I'm going to post a few quick thoughts.  

The issues facing stocks right now are a noxious brew of uncertainties that started building up last summer and finally came to a head in September.  These run the gamut of Federal Reserve policy on monetary tightening, the government shut-down, trade relations though principally at this moment with China, slowing earnings and whether or not the economy is decelerating.   Investors have been sellers because the crystal ball has been so cloudy on this front.  My current thought is that this is a bit over done but sentiment is brutally negative right now and is likely to remain that way until we see some clarity in these issues.   As these issues either get resolved or understood there is a higher probability of a fairly significant snap-back rally in the markets.  Of course that could be from lower price levels.

If earnings come in close to estimates than stocks are trading with about a 14 PE right now.  If we see no earrings growth in 2019 then stocks have a PE somewhere between 15 and 16 times next years earnings.  That is not expensive if the earnings are there.

Foreign equities were the worst performing group last year.  In 2017 they were one of the best.  It's hard to say what 2019 has in store for them but so far many foreign sectors have been acting better on a relative basis.  Need to pay attention in case we're starting to see a change of leadership on that front.

You will hear all sorts of pronouncements on what is going to happen next to stocks.  Many get on TV and proclaim they know the next direction.  Most of those "talking heads" are telling you now that the market is definitely going lower.  Maybe it will or maybe we're seeing a market trying to stabilize right now.  The reality is that nobody knows for sure where prices are going in the short run,  including me.  Instead of making pronouncements designed to generate headlines we make probabilistic assessments of what we think might happen.  Right now those assessments say there is a higher probability that we could go lower in the short-term.  Probability suggests stocks might try and retest those Christmas Eve lows.  I also think however there is a higher probability that stocks show nicely positive returns by the end of this year as long as earnings don't deteriorate too much in the coming months.  

Back early next week.  Hopefully I'll be over the flu by then.