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:

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.

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.

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.
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.

With slowing economic growth and tame inflation, it would be safe to extend maturities. Futures markets showed a 91% probability of no rate increases in 2019 by the Federal Reserve. Thus, longer-term bonds would outperform. Vanguard’s Long-Term Treasury Index ETF (VGLT) returned about 14%, far outperforming Schwab’s Intermediate-Term U.S. Treasury ETF (SCHR), which returned about 6%, and Schwab’s Short-Term U.S. Treasury ETF (SCHO), which returned about 3.0%. Score: +1.

With the Federal Reserve lowering expectations for further rate increases (the market then expected only one rate increase in 2019) and the European Central Bank beginning to unwind its easy monetary policy (having ended its bond-buying program and expected to begin to raise interest rates in the second half of 2019), the dollar would weaken versus the euro. The U.S. Dollar Index (DXY) closed 2018 at 96.2 and ended the year slightly stronger at 97.0. Score: -1.

Concerns over massive budget deficits combined with the weaker outlook for the dollar would lead to gold putting in a strong performance. Gold closed 2018 at $1,282. It finished the first half at $1,515, an increase of about 15%. Score +1.

With continued uncertainty over the risk of trade war, the problem of Brexit, and the standoff between the European Central Bank and the Italian government over the Italian budget deficit (among other geopolitical problems), volatility would remain high. The VIX ended 2018 at 25.42. The only day it closed above that level in 2019 was January 3, when it closed just slightly higher at 25.45. The VIX finished the year well below that at 13.78. Score: -1.

Our final 2019 score comes to four winners and four losers, a net score of 0. Here’s the historical evidence on my list of sure things. As you can see, only about one third turned out to be true. Apparently, sure things are not so sure. Keep this in mind the next time you are tempted to react to some forecast, either yours or anyone else’s.

Year	Number of Sure Things	Yes/True (+)	No/False (-)	Tie/Draw	Net Score
2019	8	4	4	0	0
2018	7	5	1	1	+5
2017	8	2	6	0	-4
2016	8	2	6	0	-4
2015	8	3	4	1	-1
2014	10	3	7	0	-4
2013	7	2	5	0	-3
2012	8	3	4	1	-1
2011	8	1	7	0	-6
2010	5	1	4	0	-3
Total (%)	77	26 (34%)	48 (62%)	3 (4%)	-21

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.

Final Review of 2019’s Sure Things

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