Loyal fans of Seinfeld will know that that last Sunday, December 23, was Festivus, the holiday that author Daniel O'Keefe concocted "for the rest of us." An integral part of the Festivus celebrations is the airing of grievances, when family members gather together to explain how other members disappointed them over the course of the year. In the spirit of Festivus, which was popularized on Seinfeld by Frank Costanza, here is my list of grievances with the stock market heading into 2019.
Growth outperformed value again in 2018. I use iShares' Russell 1000 ETFs to measure market styles, and once again in 2018, (IWF) the "growth" ETF, outperformed (IWB) , the "value" ETF. Granted, both were down for the year, but IWF's (-4.5%) outperformance of IWB (-8.1%) shows this market's stubborn, steadfast refusal to refrain from overpaying for low-quality earnings.
Prediction: A hard rain's going to fall on former market favorites in 2019. I believe all the FAANG names will end 2019 at lower prices than they begin it, and that debt-laden names like Netflix (NFLX) and Tesla (TSLA) will be notable underperformers.
Hard assets will rule. The (GLD) physical gold ETF had another lackluster year in 2019 (-3.4%) and is currently trading below its level of September 2010. GLD does not pay a dividend, so that ETFs dead money has been an ingot-sized drag on portfolios of those unlucky enough to own iit.
Prediction: I believe the worm will turn in 2019. Yes, I am predicting that gold will outperform global equity markets next year and actually finish 2019 above $1,300 per ounce. As central bank credibility wanes and higher short term rates (controlled by central banks) fade into lower long-term rates (controlled by the bond market) gold will actually be a good investment in 2019, especially relative to equities. Finally!
Natural gas prices have been incredibly volatile. As of this writing, the front-month February 2019 natgas contract is quoted at $3.32 mmBTU. While that contract spiked to high of $4.89/mmBTU in November, today's price is actually equal to the contract's value on November 2nd.
Prediction. Much like Frank Costanza's aluminum pole in Monk's Diner, the sound of traders getting burned by being on the wrong side of natgas trades is a grating, metallic whine. According to the EIA, U.S. natgas inventories are 18.6% lower than they were at this time last year and 19.2% below the five year average.
I believe "long natgas" ETNs like UGAZ will spike at some point in early 2019. I am readying a purchase of UGAZ for my clients' accounts, but waiting for it to fade a little more into next week before I buy it. It may be stating the obvious, but the contract that is un-affectionately known as "the widowmaker" among energy traders will have one more big move before this winter is finished. I think it will be to the long side.
Prediction: Electric cars will remain a niche product for tree-hugging tech geeks. While Tesla's Model 3 garners all the attention, Nissan's Leaf continues to wilt on its branch, with only 13,048 sold in the U.S in the first 11 months of 2018.
Electric cars (BEVs) are a solution seeking a problem, and while Musk's P.T. Barnum-like hype has moved units of the Model 3, as the federal tax credit on purchases of Tesla cars halves on January 1 (from $7,500 to $3,750) and then halves again on July 1 before disappearing altogether at year end, that price increase will drive consumers away from BEVs. In that environment Tesla's stock and its ridiculous valuation will be severely punished, and I believe it is terrific short idea for 2018.
I will break out my crystal ball in my RM columns next week, and please don't ever forget that stock markets are forward-looking, discounting mechanisms. Festivus is the heritage of the Costanzas, and predictions are the heritage of financial pundits. Just make sure you listen to the smart ones.