What will you most remember about 2018? Was it the endless supply of fake news, courtesy of the mainstream media? Was it President Donald Trump’s World Series analysis? Was it the death of actress Dorothy Malone? Well, if you have any stake in the market, then you’ll probably remember 2018 for being the worst year for your portfolio since the recession. What will 2019 bring to the business world?
Goldman Sachs
It has been a rough 2018 for Goldman Sachs, the gold standard of international finance. The stock has cratered more than 33% this year, the company has been subjected to investigations, and its predictions have not exactly panned out.
In April, the company forecast that a barrel of crude oil would surge to $80. It looked like oil prices were headed in that direction, but then something remarkable happened: Crude entered into a bear market. In recent trading sessions, crude futures dipped below the crucial $50 threshold. But Goldman Sachs insisted in November that oil would still hit $80 by the year’s end.
What else did it get wrong over the last year? Goldman Sachs was bear on Apple shares, predicted a sunny 2018, and failed at selecting the World Cup winner. While it remains a Wall Street titan, it has become the laughing stock in business media. But will the laughter come to an end in 2019? Will Goldman Sachs be a revered institution once again? The answer to that may lay in one of its biggest projections for next year: The commodities market is set for a bull market.
The bank wrote in a research note:
“Given the size of dislocations in commodity pricing relative to fundamentals — with oil now having joined metals in pricing below cost support — we believe commodities offer an extremely attractive entry point for longs in oil, gold, and base.”
Gold bugs rejoice!
IPOs
An October 2018 study turned some heads when it was reported that 83% of U.S. companies filing an initial public offering (IPO) between January and September had lost money in the 12 months leading up to their IPO. The last time it was this high was at the height of the dot-come bubble.
Was 2018 kind to the IPO market?
According to data through December 13, shares of IPO companies gained an average of 5%, well below the five-year average of 20%. Some of the biggest names that generated buzz are drowning in an ocean of red ink. Blue Apron is now a penny stock, Survey Money is below its IPO price, Dropbox fell 19% after several big investors cashed their chips, and Spotify is gradually tumbling to the $100 mark
It isn’t just tickers on the New York Stock Exchange. SoftBank raised $23.5 billion in the biggest IPO since Alibaba’s record $25 billion. Once the Tokyo Stock Exchange opened, shares plunged 15%.
Surely, 2019 will be a better year for the IPO market, right? Right? There are several major companies considered contenders next year, including Pinterest, Uber, Airbnb, and Lyft. Indeed, there will be immense excitement over these, but the champagne flow may be corked as they all suffer some of the same problems as their predecessors: too much debt, slow growth, or missed revenues.
Market Meltdown
The Dow Jones had a meteoric start to 2018. Ditto for the NASDAQ Composite Index and the S&P 500. But these leading stock indexes will end the year deep in the red, shedding all their gains in the latest year-end market rout.
Has the market bottomed out or is more pain to come?
The major investment houses do expect another disappointing year for financial markets. With money-supply growth moderating and interest rates anticipated to climb another 50 basis points next year, the era of cheap money may finally be over. An even bigger correction is nigh, from the FAANGS to the financials. The only way this trend can be averted is if the White House injects another pro-business fiscal measure, like greater across-the-board tax cuts.[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”” class=”” size=”24″]Has the market bottomed out or is more pain to come?[/perfectpullquote]
Energy Independence
America’s ascent to energy powerhouse in 2018 has been remarkable. It is becoming a global leader in crude oil and natural gas, surpassing that of Russia and Saudi Arabia. No wonder the U.S. has been named Saudi America.
Since oil will commence 2019 in a bear market, there are plenty of question marks surrounding the domestic energy industry. All the reports point to even greater output, bringing down the price of Texas Tea – not so much for natural gas in the first few months of the new year.
Unlike their foreign competitors, U.S. oil firms can remain profitable if prices trade in the $30 to $35 range – other countries need a barrel of crude to be priced in the $50 to $60 area. Should prices fall further, the U.S. is still in good shape.
To 2019 and Beyond
As Goldman Sachs has proven, it is immensely difficult to predict the future. Even when it used artificial intelligence to run one million possibilities of the World Cup tournament, the company ended up with egg on its face. It is easier to go long in the markets than to garner some quick cash, but in our one-hour dry cleaning, instant coffee, microwave dinner society, we want gains now, not tomorrow. Nobody could have expected 2018 to unfold as it did, unless you’re a perma-bear. In that case, you always have a large inventory of razor blades.
