Market Pulse: Last year’s forecast
January 3, 2019
At the start of 2018 (Jan. 11 article, available online) I gave several forecasts for the year.
I'll do the same next week for 2019. But before that 2019 forecast, let's review where I was right and where I was wrong.
My first prediction was that the "FANG" stocks would falter and value stocks would do better. From their high price Facebook has declined 42 percent, Amazon has fallen 14 percent, Netflix lost 41 percent, and Google (Alphabet) dropped 23 percent.
My prediction was less than perfect, though, depending on how you classify value. Stocks I like such as Pfizer and Verizon were up, but iShares Large-Cap Value lost 15 percent in 2018.
I'm most proud of my second prediction: the economy would grow by 3 percent or more. That sounds like an easy forecast, but at the time few expected GDP to grow that much. I also said President Trump would grow angry at Fed Chairman Jerome Powell because of rate increases. Bingo.
For the stock market, I expected a 7-10 percent gain. That prediction was looking very good … until the fourth quarter. In the end, that prediction was way off. Then again, I give long-term stock market forecasts about as much weight as I do long-term snow forecasts.
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I then wondered what could go wrong. In hindsight I could have listed almost everything! I said optimism was too high. It was, including my own. I also wrote that cutting taxes when the economy was humming anyway could lead to more Fed rate hikes than most expected, which would end the TINA (There Is No Alternative to stocks) environment. That happened.
Investors can make 2 percent in a money-market. That's not a great option, but cash can now make sense for part of an investor's portfolio.
Forecasting next year is difficult and economists and Wall Street have differing opinions. Both the Fed and a survey of 10 strategists in Barron's expect the economy to grow about 2.5 percent in 2019.
Why? Consumer spending is two-thirds of GDP and employed consumers with more in their pocket will keep spending. The market disagrees, however.
High yield bonds are tied to the strength of the economy and they are being sold. Stock weakness might point to a recession … or not. So who is right?
Next week I'll give my view.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.