-By Mark Martiak

On the last day of the third quarter 2018, the financial markets continued to climb higher and then Q/4 began and the market volatility shook investor confidence and continued for the remainder of the final three months of the year. I ended my last column in Vegas Legal by indicating that industry analysts in aggregate predicted the S&P 500 will see a 10.5% increase in price over the next twelve months. This percentage is based on the difference between the bottom-up target price and the closing price for the index as of October 4th, 2018. If you’re following along, the bottom-up target price is calculated by aggregating the median target price estimates (based on company-level estimates submitted by industry analysts) for all the companies in the index. On October 4th, the bottom-up target price for the S&P 500 was 3205.51, which was 10.5% above the closing price of 2901.61.

Through February 22nd, both the Dow and S&P have surged more than 11% to start 2019, on pace for their biggest two-month surge since 1987 and 1991. The indexes are sitting at 3% and 4.7% respectively, below last year’s records. Volatility has also eased this year: The CBOE Volatility Index, or VIX also known on Wall Street as the ‘fear gauge” has fallen for nine consecutive weeks, it’s longest-ever losing streak. They say, “the trend is your friend” and these trends appear promising for the next nine months. According to Dow Jones Market Data, the Dow and S&P move in the same direction in the first two months and the remainder of the year more than 60% of the time.

In 1991, the last time the S&P 500 climbed more than 10% in January and February, it rose an additional 14% over the following ten months according to the Dow Jones Market Data (3)

Where’s the looming risk this year? An unsuccessful end to the trade negotiations with China and Europe, slowing global growth and a potential corporate earnings recession. Much has changed since the Q/4 – most importantly sentiment.

Another bullish sign for stocks: The New York Stock Exchange advance-decline line, an indicator of market breadth that tracks the stocks advancing minus the number declining each day has hit new highs. Also, as of Friday, February 22nd, 91% of S&P 500 index stocks were trading above their 50-day moving average – which is a positive technical analysis indicator. Moreover, I see that more market sectors are participating from a buying standpoint beside the tech sector such as industrials, materials, utilities, real estate and energy are participating.

In another sign that investors are embracing risk, wagers that the market will continue to be calm

– bets against volatility have climbed. Data from the Commodity Futures Trading Commission show that speculative investors like hedge funds have gradually increased net bearish bets on stock volatility this year, after reducing them through Q/4.

In 2018, February, October-November-December were all highly volatile and contributed to a down year across all the major indexes. In each of those months, volatility flared-up when investors didn’t expect it. I think that short-volatility trades heightened violent intraday swings.

Estimates of the risk of a U.S. recession have increased. In late February, S&P Global Inc. economists said they forecast a 20% to 25% chance of recession within the next year. Wells Fargo Securities estimates the chances of a recession within the next year are about 40%. (5)
I am a Wealth Strategist, a Financial Planner, not an Analyst, though I follow them all closely. I take a holistic approach. From my view, I believe the equities market continues its bull run. Since the Federal Reserve Bank (FOMC) has indicated a willingness to pause their interest rate hikes, the fixed income, real estate, industrials and energy sectors, while challenged, shouldn’t lag in this rising interest rate low inflationary environment. Alternatives deserve an investor’s consideration as an allocation for hedging volatility and for non-correlation asset classes compared with fixed income and stocks in their portfolios. When you want to be defensive, allocate to cash – it’s your friend.

Such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy. Indexes are unmanaged, and investors are not able to invest directly into any index. Past performance is no guarantee of future results.

1. Earnings Insight, October 5th, 2018 by John Butters, Senior Earnings Analyst at FACTSET
2. Dow Jones Market Data, February 22nd, 2019
3. Dow Jones Market Data, February 22nd, 2019
4. Commodity Future trading Commission, February 5th, 2019
5. Wall Street Journal: Investors See Calm Markets Ahead, February 23-24, 2019

Mark Martiak is a New York based Investment Advisor Representative for Premier Wealth Advisors LLC. Mark is a regular Contributor for VEGAS LEGAL MAGAZINE who has appeared on CNBC’s CLOSING BELL, YAHOO! FINANCE MIDDAY MARKET MOVERS, FOX BUSINESS NETWORK and has been quoted in THE WALL STREET JOURNAL.

Securities offered through: First Allied Securities, Inc. A Registered Broker/Dealer. Member: FINRA /SIPC. Advisory Services offered through: Premier Wealth Advisors, LLC. (PWA) & First Allied Advisory Services, Inc. (FAAS). Both Registered Investment Advisers. PWA is not affiliated with First Allied Securities, Inc or FAAS.

Such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data is taken from sources generally believed to be reliable, but no guarantee is given to its accuracy. Indexes are unmanaged, and investors are not able to invest directly into any index. Past performance is no guarantee of future results.

“The opinions expressed in this material is for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. This commentary contains forward-looking statements and opinions. These opinions may not develop as predicted. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Indexes are unmanaged and investors are not able to invest directly into any index. Past performance is no guarantee of future results.”