foxex: Greenspan Returns

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. A Painful December Brings Back the Pundits

2. Chart of the Day: Amazon Struggles But Far Outperforms Market and Sector

Markets Close

Dow
23,675.64 +0.35%

S&P
2,546.16 +0.01%

Nasdaq
6,783.91 +0.45%

VIX
25.82 +5.30%

INV Anxiety Index
97.98 Low Anxiety

US 10-Yr Yield
2.825 -1.12%

A Painful December Brings Back the Pundits

Just like that, a one percent rally across the major market indexes faded into the afternoon. U.S. markets managed to eek out gains for the day, but the S&P 500 closed near its lows for the year. This December is on track to deliver the worst performance for the broader market since — wait for it — The Depression!

CNBC went with this headline this morning:

While a bit excessive, it did get people's attention. When you stack up the numbers and see the near 8 percent selloff in the S&P 500, you can't deny the historical significance of the carnage that has taken place in December.

December is shaping up to be the worst month of the year, which hasn't happened since the S&P 500 debuted in 1957. The index is down 4.7 percent year to date and deep into a correction, falling 13 percent from its record high made on September 21 — the first day of fall, literally. The sentiment is so bad that CNN tracked down former Fed Chair Alan Greenspan who had these words of wisdom for investors: "It would be very surprising to see it sort of stabilize here, and then take off." Greenspan noted that there could be a mini-rally soon, but "... at the end of that run, run for cover."

Keep in mind that this is the same Fed Chair who warned of 'irrational exuberance ' in the stock market in a 1996 speech. The market rallied for three straight years after that before imploding in the dot-com bubble.

Why it Matters:
Greenspan is not the 'boy who cried wolf,' even though his timing has been circumspect. If you watch the interview with CNN, he is warning about the impact of long-term interest rates and how that could lead to stagflation. We'll save you the trip to our dictionary of financial terms, but if you want the deeper dive, click that link. Stagflation is characterized by rising inflation and high unemployment in a slow growing economy. So far, none of those characteristics can be applied to the U.S. economy right now. The U.S. is not Zimbabwe in 2000, with all due respect. Could economic conditions change so abruptly that unemployment spikes out of nowhere while prices from everything from gasoline to aluminum climb 50 percent in a matter of months? It's hard to see that happening given the strength of the labor market and the declining price of oil. A tariff war has already impacted steel prices, but it didn't thwart economic growth. Still, most companies do make long-term investments and R&D decisions with long-term interest rates in mind — and they are climbing. They'll climb again if and when the Federal Reserve hikes interest rates tomorrow.

What's Next:
The Fed meeting tomorrow! I've been blabbering about it for weeks, but it is the elephant in the room. If the FOMC raises rates 0.25 percent as expected and forecasts more rate hikes in 2019, investors will keep selling. If the FOMC hikes rates and says it will 'carefully monitor asset prices, inflation, the housing market, and hiring to determine its next move,' there is a pretty good chance we'll see some green on the tape to close out the year. If the FOMC does nothing tomorrow and holds its fire, Powell will be seen as kowtowing to the President who calls him out daily for doing the job he hired him to do.

In the meantime, try to ignore the headlines about the Great Depression and how we're in the "Worst stock market in decades!" They are easy to write but hard to defend. Every market cycle is different and the past is never prologue in investing. This blog post by Ben Carlson about Prediction vs. Preparation is a good reminder of the responsibility we owe to ourselves as investors.

In Other News:

Three Charts that suggest commodities are headed lower

We could show you 12, but these are sufficient

Robinhood walks back Checking and Savings accounts

This idea needed more time to bake, and regulatory approval.

Crude Oil futures tumble to 2017 lows (CNBC)

A minute ago we were talking $100/barrel. Global slowdown?

Chart of the Day: Amazon Struggles but Far Outperforms Market and Sector

2018 may have marked the fall of the FAANGs as a group, but Amazon (AMZN) has still held up relatively well given the systematic factors weighing on it in recent months. Yes, it's hard to ignore that the stock is down around 24% from its early September peak of $2050 and that the current price is not far above the stock's November trough. But considering the prolonged period of high volatility and sharp declines seen in both the overall equity markets as well as the retail sector, Amazon stock is still up impressively year-to-date.

The period from the beginning of October to now has obviously not been great to be long — and Amazon is no exception. But long-term, AMZN investors have still been very well-rewarded this year, as the stock has climbed over 32% since January (as of Tuesday's market close), even after taking into account the steep fourth-quarter slide.

As for the retail sector (represented by the SPDR S&P Retail ETF, XRT), returns come in at an abysmal -8% year-to-date. (The S&P 500 as a whole is not doing much better at nearly -5% YTD.) The XRT ETF holds many major retail stocks — its top five holdings are Nutrisystem, AutoZone, Walgreens Boots Alliance, Casey's General Stores, and Kroger. Amazon.com is not one of them. The long-held notion that Amazon is killing retail may not be too off the mark.

From a technical analysis perspective, although Amazon's stock is down sharply and obviously weak compared to past highs, it's still showing relative strength against both the overall market as well as the retail sector at large. Both the S&P 500 and XRT have hit lower lows in the past few days, while AMZN has yet to break down. This further displays Amazon's resilience under pressure and its comparative appeal as a potential long-term investment.