Market Perspective by SunTrust Advisory Services Jan. 2: Global markets surpassed most investors expectations in 2019. The MSCI All Country World Index jumped 26.6%, while the S&P 500 rose 31.5% on a total return basis, its best gain in six years. With investor fears elevated and valuations depressed entering 2019, better-than-expected news went a long way toward bolstering stocks. Kicking off 2020, the backdrop has shifted dramatically:

The S&P 500 is up 37% on a price return basis since the December 2018 low, but is compounding at a more pedestrian annual growth rate of 6% since the January 2018 peak. Stocks have also tended to add to gains after big up years.

The price-to-earnings ratio for the S&P 500 is nearing a cycle high. However, the sharp decline in interest rates has left relative valuations at a level that has historically been associated with average 12-month forward stock gains of almost 13%.

Investor sentiment, used as a contrarian indicator at extremes, is at the polar opposite from late 2018. Many short-term measures show investor complacency and suggest stocks are vulnerable to unexpected bad news in the first quarter.

While shorter-term sentiment measures show a degree of complacency, equity fund outflowswhich reached the most negative extreme in more than 20 years during 2019still reflect nervousness from investors.

Global liquidity, a key market support, should remain abundant in 2020.

Technology was the only sector to meaningfully outperform the S&P 500 in 2019. This suggests a challenging environment for fund managers who were underweight the sector. In 2020, we expect leadership will broaden out and hold a positive outlook on financials and industrials.

Keith Lerner

Mack Tracks by Mack Investment Securities January: Some comparisons, one year ago and today: CNN has an emotion-based measurement, the Fear & Greed Index. One year ago, on a scale of 1-100, the index was at 12, indicating intense fearand reduced risk. One year later, at the end of December, 2019, with stocks finishing with a great run, the index exhibited extreme greed at 94. Yesrisk is now elevated.

According to the American Association of Individual Investors, its subscribers average cash balance today is near 14%. This nearly matches the lowest amount of cash (13%) in 20 years and preceding the dot-com top of 2000. By the way, cash reached 45% at the market low in 2009. Yesrisk is now elevated.

[In December 2018, a majority of] stock-market newsletter writers] said sell (when stocks were at the lows) and risk was reduced. Historically, when this group is saying sell to the extreme, stocks rise. Conversely, in December 2019, a majority of newsletter writers [gave] buy recommendations. Historically, at these levels of recommendations, stocks have routinely fallen. Yesrisk is now elevated.

--Stephen W. Mack

Market Commentary by Gorilla Trades Dec. 30: Wildly bullish technicals predict a major rally following two years of consolidation, with a base-case target above 3,500 in the S&P 500.

The volatile pullbacks [in 2019], together with the widespread recessionary fears, provide a Wall of Worry for the rally to feed on

The global economy is sluggish, but U.S. growth remains stable, and election years in the U.S. are usually bullish.

Markets have the support of central banks, with the Fed and the majority of the global central banks already in easing cycles. Besides the monetary stimulus, further fiscal measures in the U.S. are expected ahead of the election, and Europe might also resort to massive stimulus.

While valuations are rich by historic measures, interest rates are lower than ever in modern history, and the cheap funding will continue to boost stocks through buybacks.

Corporate earnings remain resilient in the face of the global gloom. Further, since balance sheets are still healthy, even a small uptick in economic activity could result in significant earnings growth.

--Ken Berman

Martin Prings InterMarket Review by Pring Research January: Our [market] barometers remained unchanged in December, with bullish bond and equity models accompanying a negative commodity one.

That combination continues to signal a Stage II environment. The stellar equity performance in December certainly kept up with the Stage II reputation of being the best phase of the cycle for stocks. Not surprisingly, the Stock Barometer rallied to a 100% bullish reading. Other indicators also support characteristics typical of Stage II.

One example is the emergence of the economy from a recession or slowdown. Evidence in this direction is not yet conclusive, but housing starts, and new home sales are expanding.The 18-month slowdown is most probably in its terminal phase.

Stocks are clearly in the process of discounting the good news.

November saw the world stock exchange-traded fund, the iShares MSCI ACWI, break out from its approximate two-year consolidation. In December, Europe followed suit, as the DJ Stoxx 50 broke out from a 20-year consolidation pattern.

--Martin Pring

Weekly Technical Review by Macro Tides Dec. 30: The coming decade is the culmination of the 80-year cycle that has marked significant turning points in our nations history, i.e., 1781, 1861, 1941, and potentially 2021. Each of the prior turning-point decades included major changes and upheaval, so we should be prepared.

The S&P 500 has rallied since the low on Oct. 7 without taking a breath. Markets are a reflection of human behavior and the normal process is to inhale and then exhale, so the recent behavior is simply not normal.

The S&P 500 has become overbought, and sentiment is universally bullish. The S&P will be vulnerable to at least a modest correction in the first part of January. With bullish sentiment so widespread, and momentum strong, the initial pullback is likely to be shallow as investors buy the dip.

A better feel for how the S&P 500 will trade in the first quarter wont really be possible until we see how it rebounds after any setback.

Initial support should be the red trend near 3170. The more significant level of support is 3070. If and when 3070 is tested, how the S&P 500 responds will reveal much about what to expect in coming months.

--Jim Welsh

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The Outlook for Stocks, Bonds, Commodities, and the Economy - Barron's