2019 Outlook: It's Alright, Ma (I'm Only Investing)

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by: Eric Parnell, CFA
Summary

Stock investors today are likely in the very early stages of what could potentially be the most challenging decade of investing that they have seen in their lifetimes.

Both capitalism and democracy are increasingly under fire as we enter 2019.

The U.S. stock market continues to offer attractive opportunities in selected segments despite the broader risks.

The better opportunities are likely to come from asset classes and categories other than stocks in the years ahead.

Considering some alternative risks for the year ahead.

“Darkness at the break of noon

Shadows even the silver spoon

The handmade blade, the child's balloon

Eclipses both the sun and moon

To understand you know too soon

There is no sense in trying”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Darkness: It was only just a few short months ago that the sun was shining brightly over investors with the U.S. stock market trading at new all-time highs as recently as late September. But in the time since U.S. stocks have descended into free fall with the headline benchmark S&P 500 Index momentarily grazing what many consider bear market territory at down -20%. While stocks may soon rally strongly and quickly erase much if not all of the recent declines in value in the coming weeks, the events of the fourth quarter of 2018 cannot be undone, as they are likely foreshadowing what could become a very challenging year ahead in 2019.

“So don't fear if you hear

A foreign sound to your ear

It's alright, Ma, I'm only sighing”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Sigh: It would feel more exasperating if it were not for the so many numbing years that brought us to this point. Stock investors today are likely in the very early stages of what could potentially be the most challenging decade of investing that they have seen in their lifetimes.

Why? Because we have been left with a U.S. stock market as we enter 2019 that has been driven to its current state voluntarily by policy makers that have spent nearly a decade keeping interest rates perpetually low, injecting roughly $15 trillion in central bank liquidity into the financial system, cutting taxes, and encouraging governments and corporations around the globe to accumulate record amounts of debt relative to their underlying output and capitalizations all with the misguided objective of fostering a “wealth effect” that was supposed to contribute in freeing us from the burdens left by the financial crisis and creating an environment of sustainable economic growth.

This grand experiment was untested. And unfortunately, it has proven ineffective in achieving its intended outcome. Instead, we are left with a global economy that remains mired in sluggish growth despite continuously extraordinary policy support. Along the way, the accumulated “wealth effect” generated by these misguided policies has created a massive income and wealth gap where a selected few have been winners while the remaining masses were largely left behind. The resulting frustration is leading to increasing social unrest in many parts of the world that includes an increasing shift toward nationalism and inserting outsiders from both extremes of the political spectrum into positions of power.

“While money doesn't talk, it swears”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Unrest: Put simply, both capitalism and democracy are increasingly under fire as we enter 2019. Yet the masters that make the rules for the wise men and the fools remain painfully slow to waking up to this reality, as they seek to continue imposing the same policies that have brought us to this point. One has to look no further to European Union leadership in Brussels to see how this phenomenon is playing out. Europe is a continent that is not moving toward greater union. Instead, it is one that is increasingly splintering in a manner last seen more than eight decades ago in the 1930s. As for the state of democracy, it is trending toward greater autocracy in many countries around the world including the abolishment of term limits among other developments.

Such are not the conditions supportive of endless stock market gains in coming years. Instead, these are the foundations of greater volatility. It didn’t have to be this way, but here we are today nonetheless.

“Advertising signs that con you

Into thinking you're the one

That can do what's never been done

That can win what's never been won

Meantime life outside goes on

All around you”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Complacency: Sure, it has been a difficult few months to close out 2018. But the stock market is likely soon to rally. It is long overdue to do so at this point. And the beginning of this rebound may have already come to pass on Wednesday with a remarkable +5% rally on the S&P 500 Index followed by a late day save on Thursday to tack on another +1%. Undoubtedly, if this recovery trend continues, many stock investors will shake off the challenges of the past few months and resume their bullish ways.

Why shouldn’t they? We are still in the midst of one of the longest bull markets in history (my apologies, but barely dipping below the -20% down threshold on an intraday basis in the midst of a three month market decline does not qualify as the end of a bull market and the start of a new “bear market”). And time and time again, over the past decade, investors have been conditioned to buy any and all dips in riding their favorite stocks or stock indices to new all-time highs. If you are an investor under the age of 35, or came to stock investing in the last ten years, you simply do not know anything different. But alack and alas, this false sense of security is precisely how so many investors find themselves unwittingly trapped in the jowls of a real bear market, which is an increasingly challenging market environment that repeatedly and relentlessly frustrates and whipsaws investors into submission over the course of many months if not a few years or more.

“You lose yourself, you reappear

You suddenly find you got nothing to fear

Alone you stand with nobody near

When a trembling distant voice, unclear

Startles your sleeping ears to hear

That somebody thinks they really found you”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Fear: U.S. stock investors have good reason to be afraid as we enter 2019. Let’s first consider the economic indicators beyond the recent sharp drop in the S&P 500 Index and the associated sustained rise in the CBOE Volatility Index, or the VIX, that are signaling potential trouble ahead. These include the recent plunge in the NAHB/Wells Fargo Housing Market Index, a Treasury yield curve that recently inverted on the short end in the 1-Year to 5-Year segment of the curve and remains precariously close to inversion through the intermediate and long end of the curve, and forward inflation expectations that were already below the Fed’s 2% target rate and are once again streaking back to the downside.

Let’s also revisit that foreign sound in our ears for a different perspective on what the year ahead might bring. Riddle me the following. Has the economic experience in the United States since the outbreak of the financial crisis more than eleven years ago been that much better than the rest of the developed world that it justifies a doubling of the S&P 500 Index on a dividend adjusted basis versus developed international stocks trading no higher today on a dividend adjusted basis than they were before this whole mess started in 2007?

And has the economic experience been similarly better than the emerging world to lead to the same double versus nothing outcome?

Or is virtually the only reason that U.S. stocks have doubled over the past eleven years while the rest of the world has languished because of the positive spillover effects associated with trillions of dollars of central bank liquidity injections and trillions of dollars of share repurchases from corporations that have been feasting at the trough of low-cost borrowing? Stock price inflation, after all, was a stated goal of then Fed Chair Ben Bernanke when it was decided more than eight years ago now that having saved the global financial system was simply not enough.

Impossible, you might exclaim. It’s had to be more than central bank liquidity and buybacks! Perhaps, but consider the following. Since January 1, 2014, the U.S. stock market as measured by the S&P 500 Index has risen by nearly +50%. Up until the recent correction, it had been higher by as much at +75% over this nearly five-year time period. These are absolutely fantastic returns over such a short time period for the largest stock market on the planet.

Presumably, for stocks to have risen so much over the last five years, investor demand for owning stocks must have outstripped supply by a considerable margin. After all, this is a basic fundamental principle we all learned in ECON 101 that should drive prices higher. Yet when we look back over the past five years, we see the exact opposite has been playing out all along the way. Instead of demand fueled investors pouring money into U.S. stock mutual funds and ETFs, investors have been draining money out of U.S. stocks to the tune of nearly a quarter of a trillion dollars. Put more simply, investors have been consistently selling more stocks than they have been buying over the past five years, yet stock prices have increased by +50% to +75% over this same time period.

This doesn’t add up. If it’s not investors that have been buying stocks all along the way, support for stock prices has had to come from somewhere else. And the most likely suspects are the central bank liquidity and corporate stock buybacks cited above.

All of this leads to a critical problem for the U.S. stock market as we enter 2019. Stocks are still trading at a meaningful historical premium relative to their underlying earnings on both a trailing twelve-month (15% premium) and cyclically adjusted ten-year basis (75% premium) even after the latest bear market grazing correction. Global central banks spent the past year increasingly shutting off the liquidity spigots while at the same time opening the drain by roughly $1 trillion in 2018, with the pace of liquidity withdrawals set to accelerate even further in 2019. And corporations that have spent the last six quarters pouring a record obliterating total of nearly $1 trillion into share repurchases at prices that are now on average measurably above where these same shares are trading today (nothing like allocating on behalf of shareholders what could have otherwise been productive capital to buying at historical peak valuations in the stock market – awesome!). At the same time, concerns are mounting that we may be headed toward a global economic slowdown and a U.S. recession in the coming year, which is a surefire way to bring corporate stock buyback programs to a screeching halt the same way it has in the past.

Put all of these above factors together, and the mirage that has long been the U.S. stock market is at threat of being fully revealed in the coming year. If the U.S. stock market does nothing more than catch down to the reality that the rest of the world has been reflecting continuously over the past decade, it implies the potential for as much as a -50% decline in value if not more on the S&P 500 Index on top of what has already been sustained since the late September 2018 peak. It should be noted that this decline if it were to come to pass would not likely be felt all at once in 2019. Instead because policy makers will likely not be able to help themselves to try and stem the decline, it is likely to take place over the course of a few if not several years into the early 2020s. This is the long, agonizing bear market scenario I have discussed in the past that is increasingly coming into focus as potentially getting underway as we enter 2019.

Impossible, you might exclaim once again. The fundamentals remain too strong to justify such a downside move as we enter 2019. And at present, such protestations would be absolutely correct. Despite weakening among some economic signals, various other current economic readings remain strong. And corporate earnings growth is still robust at a double-digit rate and is projected to continue into 2019 (of course, corporate earnings growth at Facebook (NASDAQ:FB) is still robust at a double-digit rate, yet the stock has fallen by as much as -44% since July). But if history is any guide, such positive current readings on the economy and the corporate earnings outlook can turn south in a flash. And if current GAAP earnings on the S&P 500 Index declined back from the $130 to $140 range today to $100 per share over the course of the next year in the midst of a recession onset scenario at some point over the next couple of years (a totally reasonable possibility given that it was as low as $86 per share as recently as early 2016), and investors assigned a lower 14 times multiple to the U.S. stock market, which is also reasonable given that this is not that far below its historical average at around 16 times earnings and still well above historical lows down at 5 to 6 times. This would bring the S&P 500 Index back to 1,400 and would represent a more than -50% decline from its recent all-time highs. I’m not saying it will happen, but it is also a possibility that cannot be ruled out either.

Maybe the liquidity spigots will once again flow freely in 2019 with the Fed once again rushing to the rescue. Maybe U.S. stocks will regain their footing and soar to new all-time highs in the coming year. Absolutely nothing can be ruled out in the post crisis period, particularly when it comes to stock prices going up and defying any and all reasonable expectations in the process. As a result, maintaining at least some measure of an allocation to U.S. equities remains prudent.

My preference in the current market environment remains a concentration in U.S. large cap value equities with an emphasis on defensive consumer staples, healthcare, and utilities as well as financials. Why U.S. large cap value? Not only has the category traditionally offered a rate of return that is competitive with the various other size and style categories in the U.S. stock market place, but it has done so with the lowest price volatility and thus the highest Sharpe ratio over time.

Moreover, and perhaps more importantly, the relative underperformance of value versus growth has been unprecedented by orders of magnitude in recent years. Given that value and growth have generated comparable rates of return over long-term periods of time with a slight advantage to value coupled with the fact that I am a strong believer in mean reversion over time, the coming year may be primed for value to finally take its overdue leadership over from growth once again. Under such an assumption, the potential exists for U.S. large cap value stocks to continue to climb even if the growth side of the market pulls the broader index into bear market territory just as value stocks did for much of the tech bubble bursting period from mid 2000 to early 2002.

Nonetheless, investors must recognize that risks for the U.S. stock market are tilted heavily to the downside. Now is not the time as we enter 2019 to give in to complacency or relying on a plain vanilla stock index strategy to light your way. Instead, investors must maintain a close watch and be at the ready to act nimbly if necessary along the way.

For example, stock investors that may wished to sell should be targeting levels on the S&P 500 Index such as 2,661 and 2,749 to consider exiting positions on the margins (in other words, don’t sell all of your stocks at once. Instead, sell those that you favor the least and continue to hold the rest).

And also know as we enter 2019 that stock market lows are made to be retested. Expect that now may not be the last time that we see 2,346 on the S&P 500 Index. The same may also be said of 1,810 on the S&P 500 Index from February 2016 before it is all said and done over the next few years, but only time will tell in this regard.

“A question in your nerves is lit

Yet you know there is no answer fit to satisfy”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Question: The potential downside risk for the U.S. stock market raises a natural question. Perhaps allocating stock portfolios to developed international or emerging markets makes better sense as we enter 2019? The answer here from the perspective of this analyst is a decisive NO. While U.S. stock investors are confronted with challenges as we enter 2019, I would contend that the outlook is even more treacherous abroad. Economic and geopolitical conditions are becoming increasingly fragile in many parts of the world, and these problems may only compound on themselves in the coming year.

It is important to note that while the U.S. stock market has been struggling as of late, both the MSCI EAFE and Emerging Market indices have been steadily falling all year. This has been happening for good reason. And these markets are collectively also trading at a meaningful relative discount to the U.S. for good reason.

Remember prognostications for a globally synchronized growth revolution in 2018? Turns out, not so much.

Despite the accumulating downside risks facing the broader U.S. stock market, it remains a market of stocks where individual holdings that offer sustainable free cash flow growth and attractive valuations can be readily invested in (not traded, but invested in), forgoing the currency risk and focusing on identifying selected names and segments of the U.S. market to allocate offers a more attractive prospect at the present time than trying to venture overseas.

Instead, those seeking an alternative should look not to cross geographic boundaries with their stock allocations but instead should be considering crossing asset class boundaries into new strategies other than stocks.

“And though the rules of the road have been lodged

It's only people's games that you got to dodge

And it's alright, Ma, I can make it.”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Making it: I am downcast at the long-term outlook for stocks over the coming years. But this does not mean that capital markets in general are not flush with upside returns opportunities going forward. It is important to emphasize a point that so many investors are given to overlook. Investing is not an endeavor that is a binary choice between owning stocks or sitting in cash. Instead, capital markets offer a wide range of securities stretching across a broad range of asset classes that have varying degrees of positive or negative correlation with stocks including those that have essentially no correlation whatsoever. Investors should always remember that stocks are just one small part of a vast investment opportunity set universe.

And when looking ahead to 2019, I remain decidedly bullish on a number of asset classes outside of stocks.

Leading the list heading into 2019 is long-term U.S. Treasuries. While I am bearish on spread product in the fixed income space such as both investment grade and high yield corporate bonds, I am bullish on long-term U.S. Treasuries.

Why long-term U.S. Treasuries? A few key reasons.

First, while stocks benefit from an accelerating economy, safe haven U.S. Treasuries benefit from a decelerating economy. And if the U.S. economy is slowing into recession, long-term U.S. Treasuries stand to benefit as investors move to lock in long-term rates ahead of any future Fed easing cycle.

Second, while Treasury yields remain historically low on an absolute basis, they offer attractive upside on a relative basis over the next few years. Long-term U.S. Treasury yields spent just over two years steadily rising from lows below 1.40% in the summer of 2016 to highs near 3.25% just a few months ago driven by expectations of sustained economic growth that it turns out appears increasingly unlikely to materialize. If we subsequently start slowing toward recession over the coming year, this implies the potential for Treasury yields to fall back to their 2016 lows if not further. Such a move would imply +15% upside price appreciation alone on an exchange traded fund like the widely traded iShares 20+ Year Treasury Bond (TLT). Throw in respectable monthly coupon payments along the way, and this holding has the makings of providing attractive returns for an investment portfolio going forward.

Lastly, the primary threat to long-term U.S. Treasuries is the prospect of sustainably higher inflation. Thus, the fact that inflation expectations are plunging as evidenced in the chart below, this is decidedly bullish for the category.

But what about the fact that the Fed remains determined to raise interest rates in 2019? Even if the Fed does manage two more rate hikes in 2019, it is important to remind that the impact of Fed rate hikes is felt primarily on the short end of the yield curve. As for the long end, a variety of other forces are also at work beyond what the Fed may be doing at any given point in time.

But what about the ballooning Federal debt and massive budget deficits in the United States. Quite honestly, the fiscal state of our country today causes me great consternation. And blame for the ever growing fiscal imbalances we are facing today extend evenly across both sides of the political aisle. But as the other global safe haven in Japan continues to extraordinarily demonstrate, the bounds of fiscal recklessness can apparently be stretched to unimaginable extremes before the market will begin to rebel. Eventually, we will face a day of reckoning, but in the meantime, the U.S. maintains its status as a safe haven.

Let’s move on. Another asset class category that I favor in 2019 is gold. Not for a disproportionately large portfolio allocation, mind you, but something in the neighborhood of 5% for those investors that have the risk tolerance, given the price volatility associated with owning the yellow metal.

Why gold? A few reasons.

First, after a few incredibly tough years from 2013 to 2015, gold finally bottomed at the end of 2015 and has been slowly making its way back to the upside.

Also, while gold’s role as an inflation hedge is waning as 5-year breakevens plunge to the downside, gold’s dual identity as a recession/crisis hedge starts to kick in. For if a future economic slowdown results in increased currency volatility or geopolitical instability, gold stands to benefit beyond any short-term liquidity induced jolts.

Lastly, some traditional gold investors had departed the asset class in recent years drawn by the allure of the cryptocurrency market. But as this bubble continues to painfully unwind, these same investors are bound to make their way back from this still pioneering supposed store of value in the likes of Bitcoin to the barbarous relic that has served as a store of value for thousands of years. And even if the cryptocurrency market eventually finds its footing and starts to establish its legitimacy as a true and widespread medium of exchange at some point in the coming years, precious metals such as gold could very well be part of this cryptocurrency 2.0 phase in providing the much needed value to back these currencies.

Heading into 2019, gold has done well in establishing a “U” shaped bottom following a China induced summer swoon. The yellow metal has already gained nearly +10% over the same time that the U.S. stock market has been dropping by roughly -20% in the fourth quarter of 2018, and this trend may continue into 2019 even if stocks finally start to fight their way back.

The strong performance of both long-term U.S. Treasuries and gold during the fourth quarter of 2018 at a time when stocks have been cratering highlight the appeal of these categories as we head into 2019. To this point, consider the correlation of daily returns on a 60 trading day rolling basis dating back over the last 15 years from the S&P 500 Index (SPY), the TLT, and gold (GLD).

SPY versus TLT: -0.41

SPY versus GLD: +0.03

TLT versus GLD: +0.11

How to read these numbers? Correlation is a reading that runs from -1.00 to 0.00 to +1.00. A reading close to +1.00 implies high positive returns correlation. In other words, when two securities are highly positively correlated with a reading greater than +0.60, when one goes up (down) the other is also likely to go up (down). A reading close to -1.00 implies high negative returns correlation. In other words, when two securities are highly negatively correlated with a reading greater than -0.60, when one goes up (down) the other is likely to go down (up). From a portfolio diversification perspective, the most desirable securities to own are those that are generally more uncorrelated with each other with readings between -0.60 and +0.60 with 0.00 implying no correlation. Why? Because when two securities are uncorrelated, when one goes up (down) the other may go up or down, as it is effectively doing its own thing.

If one can build a portfolio with various elements that are uncorrelated with each other and effectively doing their own thing, and each of these individual various elements has favorable positive total returns prospects in its own right, then such is an ideal outcome from an expected future returns and risk control perspective. And such is the blend that the likes of U.S. stocks, long-term U.S. Treasuries, and gold offer in today’s market.

Long-term U.S. Treasuries and gold are just two of the various attractive upside opportunities heading into 2019 that are available across the vast capital markets spectrum.

“While preachers preach of evil fates

Teachers teach that knowledge waits

Can lead to hundred-dollar plates

Goodness hides behind its gates

But even the president of the United States

Sometimes must have to stand naked.”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

Risks: Many of the economic and market risks heading into 2019 are well documented. Thus, with the interest of trying to add value, I would like to focus on two potential risks for 2019 that may be understated or not yet discussed to my knowledge. Unfortunately, both downside risks are tied to the political realm, which is often a necessary area to navigate, given how influential fiscal and monetary policy is on the economy and financial markets. With this in mind, I feel obliged to state my typical disclaimers. My intent here is not to engage in a political debate. Instead, it is to simply consider potential outcomes and their implications on the economy and financial markets. With that being said, let’s begin.

The first risk I would place in the understated category. It has surfaced in the news recently that discussions have taken place surrounding current U.S. Federal Reserve Chair Powell and his potentially being terminated from his position. It has been indicated that a primary factor that has sparked these discussions is the fact that the U.S. stock market has fallen by as much as -20% over the past three months.

Before going any further, it is important to put this into context. The U.S. stock market as measured by the S&P 500 Index has more than quintupled in rising by over +430% over the last 117 months since bottoming in March 2009. As discussed above, a primary reason for this stratospheric rise has been extraordinarily accommodative monetary policy. Over the past 3 months, the S&P 500 Index has fallen by as much as -20% as the Fed is prudently working to withdraw this extraordinary monetary policy accommodation. Still nearly higher by quintuple since the March 2009 lows even after the recent sell-off.

I will put it this way. While I have strongly disagreed with the policies of the U.S. Federal Reserve over much of the past decade, I still believe it remains critically important that this monetary policy body remains fully independent and free from political influence. Given that the U.S. is the largest economy and financial market in the world as well as the keeper of the global reserve currency, the stability of our markets including the institutions that oversee them is critically important in maintaining the world order in financial markets. While I am not naïve in recognizing that political leaders over the years have acted to varying degrees and in varying ways (LBJ anyone?) to influence those leading the Federal Reserve, if we have a Fed Chair that is terminated from their role primarily over the short-term volatility of stock prices at any given point in time, this has the potential to be meaningfully and potentially irrevocably destabilizing to global financial market confidence. And this is an outcome to which we must now assign a measurable probability as we move into 2019.

While I constantly preach that changes in portfolio strategy should be made at the margins (i.e. make only modest and incremental changes to a portfolio strategy at any point in time), were moves made to abruptly remove Fed Chair Powell from his position at any point over the coming year, such an outcome would warrant a more meaningful and pronounced shift in portfolio allocations to be carried out over a relatively short period of time. While I continue to assign this a low probability, the magnitude of the potential downside associated with such an outcome cannot be overstated.

The second risk comes from the not yet widely discussed category. A major FBI investigation has been ongoing for the last couple of years now. And it has been widely speculated that a final report from this investigation may be issued as soon as early 2019. While the outcome of this investigation may show that absolutely no wrongdoing took place by those that currently lead the executive branch of the U.S. government, it is also possible that this final report could reveal major and potentially incriminating infractions. Only time will tell.

Suppose the latter is the ultimate outcome. Once again, it may not be, but given that a measurable probability can be assigned to this outcome, it warrants consideration in the context of its implications for financial markets. Suppose the findings from the FBI investigation are sufficiently decisive that members from both sides of the political aisle agree in determining that further action is required as stated in Article II, Section 4 of the U.S. Constitution.

A hallmark of this nation has been the peaceful transition of power. This includes August 9, 1974, when President Richard Nixon departed the South Lawn of the White House on Marine One for the last time. But what if under the above stated scenario, the current President decides to stay and fight his case out to the bitter end, particularly if it becomes apparent that a Gerald Ford style full pardon may not await in the aftermath of any future departure? And what if the current President maintains sufficient vociferous support from a dedicated segment of the American public that helps to justify his staying to fight? What then?

While financial markets, including U.S. stocks, have traditionally shown great resilience in calmly navigating through periods of great political uncertainty throughout history, how markets might respond to a potentially prolonged and contentious Constitutional crisis of this manner is an unknown. Thus, any such political developments on this front regardless of the outcome should be closely monitored in the year ahead. Again, I would assign an even lower probability of such an outcome in this case, but it is both measurable enough and sufficiently unprecedented that it warrants advance consideration from a downside risk perspective.

“But it's alright, Ma, it's life, and life only.”

- It’s Alright, Ma (I’m Only Bleeding), Bob Dylan, 1965

The bottom line: If the U.S. stock market seemed irrational over the past decade, it may seem like nothing compared to what potentially lies ahead over the next few years. But we as investors are not bound to passive index strategies and simply following the course of the stock market. Such an approach may have worked well in recent years, but it is already becoming less so as 2018 draws to a close and may become even more pronounced as we move through 2019 and beyond. And those investors that employ active management and exercise their freedom and choice to act rationally and pursue attractive upside investment return opportunities in a market that may end up becoming increasingly irrational all around them should be rewarded in the end. Such a path is not without its challenges and gut checks along the way, but nobody should have ever thought that investing in capital markets was easy.

And as a quick recap from the perspective of this investor as we head into 2019, stock allocations should be focused on the U.S. large cap value segment of the market with a particular emphasis on companies from the consumer staples, healthcare, utilities, and financials sectors. Investors should also be well served to look beyond the stock market with a majority of their overall portfolio allocation, as a number of categories are poised to perform well in an environment of elevated stock market volatility. These include long-term U.S. Treasuries and gold among a number of others. Lastly, investors should be encouraged to hold a meaningful allocation to cash as we head into 2019, particularly since many cash accounts are now offering respectable income for the first time in years.

It promises to be an eventful 2019 ahead. I wish you all a brave New Year and the best of luck in capital markets!

Disclosure: This article is for information purposes only. There are risks involved with investing including loss of principal. Gerring Capital Partners and Retirement Sentinel makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Gerring Capital Partners and Retirement Sentinel will be met.

Disclosure: I am/we are long TLT,PHYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long selected individual stocks with a concentration on U.S. large cap value stocks and a sector emphasis on consumer staples, health care, utilities, and financials as part of a broad asset allocation strategy.