A Nice November Portends a Great Market 2019 Finish, Says Stovall

Everybody remembers the bloody end to 2018, when stocks cascaded down and barely missed falling into a bear market (a loss of 20%). What a difference a year makes.

The late-2018 slide started in September last year and ended just before New Year’s, amid signs that the Federal Reserve was going to reverse its policy of monetary tightening and hopes burgeoned about the trade war.

As this year winds to a close, things are going well. “November has lived up to its reputation of kicking off the two-month stretch of seasonal optimism,” wrote Sam Stovall, chief investment strategist at CFRA, in a research note.

December has a good record for levitating stocks. Since 1945, Stovall noted, the month has been the best for the S&P 500, as well as featuring its lowest level of volatility. What’s more, he said, all the broad market indexes, including often lagging small and value stocks, sported positive average returns.

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Small stocks, for instance, typically suffer amid uncertain times because an economic downturn would hit them the hardest. But this year, the small-cap Russell 2000 is ahead just under 20%, while the large-cap S &P 500 is up around 25%.

And that’s despite Monday’s stinky start to the year’s final month, amid disappointing manufacturing data and questions about the trade talks after President Donald Trump signed a congressional measure backing the Hong Kong protesters against the Beijing regime.

The S&P SmallCap 600, Standard & Poor’s small stock index, should see buoyant earnings growth next year, Stovall indicated, citing analysts’ consensus—up a projected 20%, versus a 3.3% drop in 2018.

Not all stock sectors are enjoying this party this year. Defensive groups like utilities aren’t surging, while health care is second to the bottom but is at least in positive territory. Perennial laggard energy is in last place, with a negative showing.

November, Stovall declared, “sets a favorable tone as we enter the final month of the year that has traditionally recorded the best average return.” And that sounds like a good Christmas present, as opposed to last year’s lump of coal.

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Tags: CFRA, November, S&P 500, Sam Stovall, small stocks, Stock Market

The Washington State Investment Board’s case against Brazilian company Odebrecht in an effort to recover tens of millions of dollars lost in a bribery scheme was given a green light to proceed, according to a report from the Seattle Times.

The pension is suing because it purchased about $100 million worth of notes from four different offerings of Odebrecht Finance, totaling 163 million units of Odebrecht bonds with yields ranging from 4.375% to 8.25% between 2012 and 2015, the Times reported. The returns were impaired by Odebrecht’s nefarious activities involving hundreds of millions of dollars used to bribe officials to help the company win billions of dollars in government contracts.

According to court documents, Odebrecht admitted to using a business unit within Constutora Odebrecht – the “Division of Structured Operations” – to pay approximately $800 million in bribes in connection with 100 projects with 100 people in 12 countries in exchange for ill-gotten benefits of more than $3.3 billion.

Odebrecht accepted responsibility for these actions and pled guilty to the US Department of Justice so it would not file any additional criminal charges against Odebrecht and its subsidiaries and joint ventures.

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The WSIB said that investments in Odebrecht appeared to be an attractive opportunity, and was wooed by the company’s financial statements, and its apparent prowess and ability to consistently and fairly win government contracts solicited through competitive bidding. WSIB claimed that had it known about the “massive bribery and kickback scheme,” it “would not have purchased the Notes, or at least not at the prices at which it paid,” WSIB said in a court filing.

“Unbeknownst to the public or the Company’s investors, the secret to Odebrecht’s success and its financial results was not its negotiating prowess or capabilities, but instead a massive bribery and kickback scheme involving hundreds of millions of dollars in illicit payments that it used to secure its government contracts,” the WSIB said.

It’s unclear how much the WSIB can expect to recover from the case at this time.

The pension recently announced the appointment of a new chief investment officer to replace Gary Bruebaker, who’s headed the board since the early 2000s. Allyson Tucker, currently serving as the head of the board’s Risk Management and Asset Allocation team, will assume her new role on January 1.

The WSIB did not respond to questions by press time.