Consumers - 69% Expect To Be Better Off Financially Next Year

Consumers - Small Caps Rally

S&P 500 only increased 7 basis points on Monday. But the Russell 2000 was up 0.84%. Russell 2000 is up 12.03% year to date, while the S&P 500 is only up 8.1%. 

Either the Russell 2000 is outperforming because it has a higher beta than the S&P 500. Also, the market has been in risk-on mode or because the American economy is outperforming Europe’s economy. 

We also must consider that during December, investors thought junk bonds were at the beginning of a major sell-off. So they sold small caps. Once the Fed turned dovish, small caps had more of a reason to rally than large caps.

Nasdaq increased 0.13% and the CNN fear and greed index increased 1 point to 62. Best sectors were energy and industrials which increased by 0.46% and 0.55%. 

Even with the decline in global manufacturing growth, industrials continue to do well. Boeing stock is up 24.75% year to date. Worst sectors were healthcare and communication services as they fell 0.13% and 0.63%.

Consumers - Vanguard Has A Conservative Long Term Outlook

I think it’s great for the stock market to remain stable because the only options are a correction or stability. 

There is no way the stock market can keep rallying at this year’s rate given the declining earnings estimates. Stocks can increase when earnings estimates fall. Stocks can even increase when earnings fall. 

However, at a certain point stocks get too expensive. Expecting +15% gains in 2019 while earnings fall is a mistake.

Vanguard stated its 10-year median annualized estimate for U.S. stocks is a 5% increase. That’s down from about 8% five years ago. The long term average is 7%. 

It’s very reasonable to expect less than average returns because this cycle is about to be the longest since the 1800s. There will probably be 1 recession and there might be 2 recessions in the next 10 years. The Vanguard estimate is much more optimistic than what the Shiller PE projects. 

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