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4th Quarter 2019

“It is difficult to make predictions, especially about the future.”

Although the above quote is often attributed to Yogi Berra, its origin is Danish, with its earliest known appearance in the autobiography, ‘Goodbye and Thanks’ by K.K. Steincke.   As we finish up one year and commence the next, the investment industry likes to focus on market predictions.  With this in mind, we thought we would review where we were at this point last year and the predictions we were digesting.  Bear in mind that 2019 was a strong year for both equity and bond markets.

  • IBD’s current outlook for the stock market is “market in correction,” urging investors to stay in cash as much as possible. Stock opportunities remain scarce. Few leading stocks are forming sound bases, and scores of breakouts over the past few months have floundered. Investors will need to be patient and wait for a bottom. – Investor’s Business Daily, 12/29/18
  •  For equity investors, risk is high, and the margin of safety is low because stock valuations are elevated compared with history.  We forecast the S&P 500 index will generate a modest single-digit absolute return in 2019. – David Kostin, Chief Equity Strategist, Goldman Sachs
  • LPL Financial Research’s forecast for 2019 includes GDP growth of between 2.5% and 2.75% in 2019, as well as a total return of 8% to 10% for the S&P 500.
  • The Federal Reserve likely will continue to raise short-term interest rates to about 3% in 2019, but we don’t see longer-term yields moving much above the recent highs. Tighter global monetary policy, a strong U.S. dollar and sluggish global growth exacerbated by trade conflicts are likely to weigh on economic growth and inflation, limiting the rise in bond yields. – Kathy Jones, Schwab Fixed Income 2019 Outlook
  • Solid US economic growth combined with improved wage growth and low unemployment in the US support the expectation that the Federal Reserve will maintain the gradual pace of short-term interest rate increases through 2019. – Dan Draper, Invesco, Global Head of ETFs

When people are paid to make predictions, they will.  To a large degree, these prognosticators are employed because we like certainty.  There is something comforting about someone echoing our fears or putting a hard number on something that is impossible to forecast.  The truth is that uncertainty is the price we must pay to get the returns that capital markets can offer over the long run.

Another interesting point, other than the fact that these forecasts weren’t terribly accurate, is that 2019 was a breakout year very similar in magnitude to 2013 for stock markets.  Like 2019, investors seven years ago were fearful of a recession, concerned about the instability of the Euro area (Greece then, Brexit now) and reeling from a downgrade in the credit rating of US treasuries (trade tensions now). 

The big takeaway is that markets, in addition to being inherently unpredictable, deliver their returns in bunches.

So, what are our predictions?  If you focus on your plan, stick to your asset allocation and set your sights on a long-term horizon, you have a better chance at achieving your goals than the person devouring each year’s forecasts.

We thank you very much for the trust you have placed in our firm.  Please do not hesitate to contact us with any questions.  Further, if your financial circumstances have changed, please call the office to set up an appointment to review your plan. 

Best regards,

Shoreline Financial Advisors