Still worried about where stocks are headed? Look at these indexes for hope

Ken Fisher

Special to USA TODAY

Still scared by the last few months’ scary stories? Relax. My last three columns explained why 2018’s stock market disappointment supports a V-shaped rebound and a happy, profit-rich 2019. Yet many worry this time is different. Do you?

If so, consider this: Without global recession, a long bear market is super unlikely. Two negative years in a row have never happened without a worldwide recession or global war. To foresee that risk, consider the Conference Board’s fantastic Leading Economic Indexes (LEIs) and global purchasing managers’ indexes (PMIs). They currently presage global expansion.

LEI combines 10 forward-looking economic indicators into one super-accurate predictor of future growth (or recession). Components include items like factory orders, credit availability, and, most telling, the yield curve spread (see my July 22 column on yield curve).

No U.S. recession has started while U.S. LEI was high and rising. It always fell for months beforehand. If recession were nigh, LEI would warn us. Now it screams growth. It’s high and rising – up 18 of the past 20 months.

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Not just here! The Conference Board runs LEIs for 11 other countries, the eurozone and the world. Its eurozone LEI remains in a long uptrend. Ditto for China, India, Korea and the world. Britain’s is down, but its weakness comes from sentiment-based components, bashed by Brexit fears. Britain’s fundamental components point positively.

As 2019 unfolds, one question is likely on most investors' minds: Is the bull market that began in March 2009 dead, or can it find its footing on less stable ground? Last year brought on major waves of volatility, and the Dow Jones Industrial Average (DJIA) posted its worst December since the Great Depression year of 1931. With this much uncertainty, equity investors might think it is time to throw in the towel. The DJIA index closed the year at 23,327.46, down 5.6% in 2018, after in 2017 it finished up about 25%. Similarly, the Standard & Poor’s 500 index finished 2018 down 6.2%, after gaining more than 19% the previous year. An alternative calculation for the Dow, represented by the so-called Diamonds ETF (DIA), in an effort to include the ever-important dividends, lost 7.4% in 2018. Asking whether the bull market is dead will not yield any clear answers. Each year 24/7 Wall St. conducts an annual review of the 30 Dow stocks to forecast how the market as a whole would perform in the year ahead. This year, the analysis has provided a somewhat contrarian outlook, especially in light of recent market volatility and expected headwinds in 2019. This approach of considering consensus price targets for each of the 30 Dow stocks has yielded a preliminary target of 28,000 for the DJIA in 2019. There are many forces that could affect financial markets, the economy as a whole, as well as each stock. The markets will have to contend with the United States resolving international trade issues with China, a continued tempering of trade hostilities within the old NAFTA, Brexit, a Federal Reserve that wants to keep raising interest rates, and a potential inversion of the yield curve. 24/7 Wall St. has some serious concerns entering 2019 in using an analyst-driven consensus forecasting model alone, even if it has been useful in prior years. It is likely that many analysts have yet to take into account broader headwinds and have not yet adjusted down their price targets accordingly, especially considering how far off their highs many of these company stocks closed at in 2018. Still, a preset model is merely a means of calculation, and it allows investors to judge the state of the overall market. With a projected price increase of 20.2% on top of the 23,327.46 close of 2018, the current model forecasts the Dow would rise to 28,039.60 in 2019. Let us call it 28,000 for rounding purposes. Considering dividends in the implied upside calculations, the Dow would climb 22.8% to 28,669. Here is a review of all 30 Dow stocks, where they stood as 2019 began, what are some of the risks and hurdles ahead, and how each stock could help the Dow get to 28,000 this year.

Combining LEIs with monthly PMI surveys adds belts to your forecasting suspenders. PMIs estimate what percentage of a country’s businesses grew. If PMI tops 50, over half grew, implying monthly economic growth. If under 50, then contraction.

Don’t fixate on any one country – even America. Instead, scope out the biggest chunks of global GDP. Like America, 24.4 percent of the world. Or the 28-country eurozone, 15.9 percent. Add China (16.1 percent), Japan (5.9 percent), Britain and India (3.2 percent each) – and you’ll have enough.

December PMIs just came in – showing growth in nearly all major nations. U.S. manufacturing PMI was 54.1. Nonmanufacturing – the vast majority of GDP – hit 57.6. Britain’s manufacturing (54.2), service (51.2) and construction (52.8) PMIs also showed growth. Every major European country reached or exceeded 50 except France (where “yellow vest” protests disrupted business – a one-off). Otherwise, growth!

China’s manufacturing PMI is below 50, but barely.

The global economy doesn’t need – and seldom has – all countries growing at similarly strong rates. It’s about areas of strength outweighing weak spots. Today, the strength far outweighs weakness. Yet sentiment presumes the reverse, setting up big positive surprise potential as recession doesn’t happen. Of course, stocks don’t typically move for long in a perfectly straight line.

But fathom global growth, and believe in the V!

Ken Fisher is founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter: @KennethLFisher

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.

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