What happened last year, and what it may mean for the market in 2020.
The Stock Market Report
2019 is in the history books. It was an outstanding year, helped in part by a 20% market drop in Q4 2018, which established a low base for the gains that followed. And it was also helped in a big way by a very friendly Fed.
The 2019 market was not driven by fundamentals like earnings growth, capital expenditures, productivity gains or margin expansions. It was driven by cheap and available money, which corporate America largely used to buy back their own shares.
Almost all of the gains in 2019 came from P/E expansion. But who cares? A 30% gain is what it is, and we'll take it.
Chart 1. Buy the Dips
2019 was the year of the Dip Buyer. There were 3 opportunities to buy dips in 2019, and those who did so were handsomely rewarded. Will this work as well in 2020? I don't know. But what I do know is that buying the dips in 2020 will take more courage than it did in 2019, given the higher prices asked by the Rally Sellers.
Chart 2. Sell the Rallies
2002 is the closest analog I could find to show what happened to the dip buyers. It was not their year. The Rally Sellers had their way in 2002, taking advantage of 3 opportunities to unload their expensive stocks on the intrepid dip buyers.
In 2002, dip buyers paid a heavy price for jumping the gun. Eventually they were made whole again as the market pulled out of its slump in 2003. But not all of them. Many abandoned stocks for good and never returned.
Making things even worse for the 2002 dip buyers was that many high-flying tech stocks never recovered. Some went bust. Others were acquired for pennies on the dollar by bigger companies. In most cases, the common stockholders got the short end of the stick. The bondholders didn't fare much better, either.
Final Thoughts
Where will 2020 take us? Regular readers of my work know that I'm forecasting a down year for the market. But only a mere decline of 11.9%. That's not so bad, is it? Bulls can ride that out without much trouble, and maybe even do some dip buying along the way.
As always, if you like what you see, or have suggestions for improving this recap, leave a comment below, or email me at info@zeninvestor.org
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