Final Review of 2019’s Sure Things

At the start of 2019, I compiled a list of predictions that so-called “gurus” had made for the upcoming year, along with some items I heard frequently from investors, for a consensus on the year’s “sure things.” The turn of the calendar means it is now time for our final review. As is my practice, I will give a score of +1 for a forecast that came true, a score of -1 for one that was wrong, and a 0 for one that was basically a tie.

Here is how we ended up with respect to the eight sure things I was tracking:

  1. U.S. economic growth would continue strong, slowing just slightly from about 3% to 2.7%. While the U.S. economy grew by an annualized 3.1% in the first quarter of 2019, the second, third, and fourth quarter growth rates came in at just 2.05, 2.1%, and 2.3%, respectively, producing a full year growth rate of 2.3%. With growth appearing to slow more than expected, we’ll score this -1.
  1. Corporate profit growth would continue to be strong, with Morgan Stanley predicting S&P 500 companies’ earnings would reach a cumulative $178 a share, an increase of about 8%. The latest (December 16) consensus analysts’ estimates for S&P 500 operating earnings per share have been lowered to about $162. Score: -1.
  1. The U.S. stock market would have a strong year. Bloomberg gathered 14 forecasts for 2019 from the firms it tracks, and the average prediction was for the S&P 500 Index to rise about 11% to 3,056 by year’s end. Fueling the strong forecast was that, based on forecasted earnings, valuations had fallen to the cheapest levels since 2006 – the forward-looking price-to-earnings ratio is only about 15. Mike Wilson at Morgan Stanley was the least bullish, with a target at 2,750. The S&P 500 Index closed the year at 3,231, and the SPDR® S&P 500 ETF (SPY) provided a total return of more than 30%. While the forecasted return of 11% was off by about 20%, we’ll still give this a score of +1.
  2. With economic growth moderating, inflation would remain tame. The consensus forecast of professional economists was for the CPI to increase by just 2.3%. The market certainly agreed, as the spread between 10-year TIPS and 10-year nominal Treasury bonds was only about 1.7 percentage points. The first 11 months of 2019 produced increases of 0.0%, 0.2%, 0.4%, 0.3%, 0.1%, 0.1%, 0.3%, 0.1%, 0.4%, and 0.3%, respectively. That’s an average of about 0.2% per month, right in line with the full year forecast. Score: +1.