Thanksgiving and financial markets actually have a lot in common.
In life, we have complaints. In markets we have risks. On Thanksgiving, we give thanks to the positives in our lives. In markets, we have opportunities to be thankful for. Wherever there's risk or downside, there's probably upside and opportunity on the opposite side of things.
Thus, TheStreet brings you a quick snapshot of what the market and economic conditions are, what the risks are and where there is opportunity.
Let's start with what the risks (or complaints) are:
- There's an elevated probability of recessionwithin the next 12 to 18 months. Some strategists and economists say there is an over 20% chance. This probability fell a bit of late.
- The economy is late in its cycle, most likely, with the current expansion having gone on for over 10 years now. How long can the expansion last?
- GDP Growth is decelerating. From roughly 4% in August of 2018, the growth rate fell to 1.9% in the third quarter of 2019 and is expected to keep sliding. The trade war isn't helping.
- The S&P 500 has risen 23% year-to-date, leaving some to question upside from here. That's a historically large gain, but it was starting from a low point in January after an ugly December 2018 sell-off.
- For risk-averse investors, government bond yields globally are low, even compared to inflation. Finding safety is hard.
But opportunities (or things to be thankful for) exist:
- Basic economic fundamentals are strong. Unemployment is around 3.6% in the U.S., near 50 year lows.
- The consumer is still strong and growing. With the consumer accounting for about 70% of U.S. economic output, a strong consumer means a strong economy.
- Equity valuations are reasonable. The average stock on the S&P 500 is trading at about 17.5 times next year's earnings. That's slightly above the average earnings multiple in the past 10 years, but many on Wall Street call that valuation "fair."
- For the risk-averse investor, there are tons of stocks yielding dividends of 4% or higher. This puts inflation of 2% or below to shame.
So as investors position their portfolios for the next several months to one year, there's not a necessarily clear way to go.
For aggressive investors, the S&P 500 certainly isn't cheap. Broad exposure to the market isn't a sure bet, even though some strategists, even rather bearish ones, say there will be slight up moves on the index before we see a down move. So valuations leave something to complain about.
But there's something to be thankful for: if the average stock on the index trades at 17.5 times earnings, that means roughly have of them trade below. There may be some opportunity.
As for that consumer, investors have their eyes on holiday spend. For Apple (AAPL) - Get Report , one New York shopper TheStreet spoke with said 40% or more of his holiday spend will be on an Apple product. Is he representative of most Americans holiday shoppers? Should you feast your eyes on Apple's Q4 earnings?
For the defensive investor, treasury yields are risky. They barely protect an investors against inflation (it should be noted low rates have powered stocks). But some consumer staples stocks like Coca-Cola (KO) - Get Report have dividend yields of 3%. Some energy stocks like BP (BP) - Get Report yield 6% or more. Be careful with energy stocks. They're volatile.