The world has a lot to worry about.
That has been demonstrated in a way that those of us who follow markets closely can see most clearly: in the prices of commodities and stocks.
The S&P 500 index is still well underneath levels it first surpassed in late 2017 and is still near correction territory after an appalling late-2018 slump.
Soybeans have crawled back up to 2015-16 lows, but are still at the worst levels they’ve suffered since the end of the commodity boom. Corn, which serves as a bellwether for other crops, is stumbling along beneath US$4 per bushel.
That doesn’t provide much fodder for feeding farmer optimism, but since it’s a new year, let’s flip the pessimistic outlook and think about all the ways this could turn out better than it looks today.
One common phrase among analysts is, “markets climb a wall of worry.”
What that means is that bull markets don’t just occur when there’s an unending string of good news to cause traders to get stupidly confident. They often occur when there are a lot of worries and one-by-one they get alleviated, allowing multiple relief rallies.
Well, we certainly have a wall of worries before us, bigger than U.S. President Donald Trump’s hoped-for Mexican border wall, and any of the following could help if they dissipate:
- The after-school scrap between Trump and China’s Xi Jinping gets called off. There’s already a truce between the U.S. and China, and it’s in everybody’s interests to dial-back the possible brawl between the giant nations for the next year at least. Trump only needs to be doing a beatdown on China in 2020, when the next elections are being held, and China’s trying to stave off financial crisis as its debt becomes even more unsustainable, so there is hope for things to mellow out until after the next New Year.
- Italy doesn’t fall down, go boom. Everybody’s worried about Italy financially imploding under the pressure of the Germany-friendly euro and the blundering of Italy’s new government. Maybe everything will go OK and a typical, crappy European patch-job occurs.
- Brexit, hard or not, is no big deal. Remember Y2K? Yeah, that devastating system shutdown and economic catastrophe that didn’t occur back in 2000. Perhaps Brexit will be like that, regardless of Project Fear proponents and everybody that hates the notion of British independence. Maybe it’ll be a big, bloody mess. That’s what the world expects. But if it isn’t, or is less messy than expected, markets could get a bump.
- No crazy, brutal or nasty foreign dictator does anything to start World War Three. Yes, we’re talking about Kim Jong-un, Vladimir Putin and … heck, there’s a bunch of them. But maybe something in the zeitgeist will incline them to act like it’s Springtime for Hitler and they’ll back away from constant provocations. A non-apocalypse 2019 would help markets relax a bit.
- Interest rates don’t soar. Markets are OK with the weak, flaccid economic growth we’ve experienced since 2009, especially when coupled with ultra-low interest rates. What they don’t want to see is growth screech to a halt if interest rates continue to march sharply higher. The late 2018 stock slump might cause central bankers to lay back a bit.
- Somebody’s crop gets wiped out. We don’t like to admit it, but we need somebody somewhere to have a disastrous crop in 2019. That’ll make everybody who gets a crop make a bunch more money. More money = more happy. Simple equation for happy farming in 2019.
So keep worrying, but worry a bit less every month and we’ll have a good year.