In my opinion, 2019 is going to be just as volatile as the last few weeks.
My reasoning revolves around the multiple antagonists that are lining up to scare Wall Street. As the new Congress takes their place within Washington, it seems to me that the political dog fight currently going on will only get more erratic. Personally, I think it's the combination of political strife, ongoing trade fear, and higher rates that are hitting the stock market -- not the economy. Furthermore, there were far too many stocks that had become far overvalued.
Will the economy slow down as credit tightens? Sure, that's Economics 101. But, in my opinion, the current turmoil revolves around geopolitics, generally negative sentiment, U.S. gridlock, and big spats of investors preemptively maneuvering for a recession that hasn't arrived yet. It seems that even Treasury Secretary Steve Mnuchin making a comment about safe liquidity will set things off in a negative way.
With that cocktail of uncertainty, I think commodities will be the thing to chase in 2019. In particular I'm talking about oil prices.
My pick for the year is the United States Oil Fund (USO) . What's my reasoning? It's pretty simple. Oil is as cheap as it gets these days. You can't predict the liquid gold's performance over a short-term period, but it's extremely fair to say that oil will indeed rally from these prices. Seemingly chasing toward $40 a barrel, some are panicked over the effect these prices are having on oil companies. Personally, I see this as a nice economic boost to the middle class consumer during the holidays. Furthermore, I see it as an opportunity to invest some money.
The ETF tracks the price of oil futures for West Texas Intermediate. The concept of my trade isn't very complicated. Producers are not going to benefit from prices being this low over an extended period of time. The way to play this is to wait until we see genuine production cuts rather than discussion of cuts.
There are some analyst opinions that the current pricing pressure could remain through the first quarter of 2019 before cuts and supply/demand can again take control of the market. The choice on when you jump on this trade is a personal preference. The big question is whether the pressure in the first quarter will be enough to drive oil even lower, to simply stifle its ability to rebound. Down more than 20% in 2018, oil has a lot of upside in a rebound. The same holds true for USO.
Taking on some exposure to the ETF now and just sitting on it would be the simple way. Even if negative downside continues through the first quarter, your game plan is to hold this position for the year. That should yield results.
If you're feeling more aggressive, there could be some incredibly lucrative opportunities if the market drives this thing even lower. It's all a question of whether you believe we've seen the bulk of the decline already. I myself am considering getting a stake after the holidays, and then adding to it if things stay negative.
It's tempting to chase stocks instead. And there are definitely stocks to buy right now for long termers. I bought some UBS (UBS) the other day for the dividend. The difference is that UBS could very well have a lot more downside and pain if Europe keeps battling over a Brexit -- among other things. I'm willing to look past that thanks to their strong cash position and the fact that I'll keep it for a decade.
But if you want something that can provide real performance in 2019 alone, I think USO is it. There are no earnings to consider. It's simply supply and demand. It's ironic that Saudi Arabia faced pressure earlier in the year as prices were getting "too high." Now we're seeing the effects of a worldwide effort to drive prices down and there's panic over prices being too low. Well, I'm not panicked. I think this will serve as a mini stimulus to the U.S. economy, as well as provide a springboard for a good trade in 2019.