Market Direction Mid Week Update©

Market Direction: BEARISH alert issued 11/23/2018

Apple announces a revenue shortfall. More downside in the market to come.

After a brutal stock selloff in December and for the year, markets could be due for a rally in 2019, says Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School of Business.

There’s one catch — the U.S. needs to avoid a recession, which some economists and the market are already pricing into expectations for this year.

On top of that, investors may need to wade through a rough first three months of the year to get to rosier times, Siegel told MarketWatch during a phone interview, reiterating comments he made earlier during a CNBC interview on Wednesday.

“My feeling is that the market is virtually positioned for a mild recession, but I just don’t think that it’s going to happen,” Siegel said. “If we avoid a recession, we’re going to have a really good market,” he told CNBC.

The Wharton professor who forecast that the Dow Jones Industrial Average DJIA, +0.08% would see 20,000 at the end of 2015 says now that a combination of a better-than-expected corporate and economic results should embolden bulls in the near term.

“I think we swung too positive last summer and now I think we’ve swung too negative,” he said.

Indeed, last month’s drop for stocks marked the worst December for the Dow and S&P 500 SPX, +0.13%  since 1931 and the worst annual return for the three main equity benchmarks, including the Nasdaq Composite Index COMP, +0.46% since the financial crisis of 2008, according to Dow Jones Market Data.

Of course, if a recession does take hold in the next 12 months, then all bets are off for Siegel, who predicts that the market could face a plunge of another 5% or 10%.

But a recession seems far off the radar for the notably bullish scholar and prominent market pundit, who cites strength in the U.S. economy and a healthy job market as further reason to doubt that economic contraction may hit the U.S. imminently.

A closely watched jobs report on Friday should offer some immediate clarity on the state of U.S. employment.

Siegel also doesn’t see the Fed, which has raised borrowing costs nine times since the end of 2015, lifting interest rates a 10th time in 2019, if the 10-year Treasury TMUBMUSD10Y, +0.00% remains below 3%. It stood at around 2.66% late Wednesday morning.

“The Fed can’t do anything at 2.66%,” he said referring to the benchmark Treasury note.

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The all-time lows since our initial recommendation to go SHORT this market. Here is how the markets have performed:

Stock Market Direction Recommendation (11/23/2018)
Dow	down 2,573.42 points a 10.60% gain	12/26/18
Nasdaq	down 748.81 points a 10.79% gain	12/24/18
S&P 500	down 285.98 points a 10.86% gain	12/26/18

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