Predictions 2019: Part I
We're just about out of the final turn. Once we get through Thanksgiving, it's a five-week gallop to the finish line of 2018.
It's really the day after Thanksgiving — Black Friday — that sets the tone for the end-of-year trading period. This is the first measure of consumer confidence that is solely focused on Christmas retail sales. If people are out in droves, throwing cash around like New Year's Eve confetti, then we are likely to get a solid run until they pop the corks on December 31st.
Given that the U.S. economy has continued to add jobs at a solid pace this year, it's not a reach to think Black Friday could turn out pretty good. Early indications are that Thanksgiving travel will be heavy...
Thanksgiving was my dad's favorite. After doing turkey every conceivable way — we had corned turkey, turducken, butterflied and grilled turkey, deep-fried turkey — he moved on to racks of lamb, whole tenderloins, and rockfish. One unseasonably warm Thanksgiving, we sat outside for hours shucking and grilling oysters.
This will be my third Thanksgiving since he passed. But it will be my first with a daughter home from college. There's always plenty to be thankful for.
I like to think Thanksgiving is a time for traditions, like my annual predictions piece for the coming year. But as I look through the archives, I see I've not been very regular with these at all. So I'm going start a tradition where I make my traditional predictions an actual tradition, like with a regular date and everything.
Today, we'll do the look back at last year's predictions to see how I did. Then, on Wednesday, I'll enthrall you with what I see coming in 2019. That way, it will all be fresh in your mind if there's a lull in the conversation at your Thanksgiving dinner...
“Hey, what do y'all think about Brit's predictions for 2019?”
“You know, Briton Ryle? Runs the incredibly successful Wealth Advisory investment newsletter? Writes stock market stuff twice a week for the amazing Wealth Daily free e-letter? No? Never heard of him?”
Damn, this holiday sucks...
Predictions 2018 Recap
1. The S&P 500 will hit 3,000. Might as well start off with a bang. Yeah, I'm calling for another year of bull market. And the S&P 500 to 3,000 is not as wacky as it sounds. I'm calling for an 11% gain. And I expect it happens because of a nice combination of earnings and optimism.
The S&P currently trades with a trailing P/E of 25 and a forward P/E ratio of 18. Yes, both are above the 10-year average. But here's the thing: Last year at this time, the trailing P/E for the S&P 500 was 24.9, basically right where it is now. So I say if earnings come in basically as expected ($145 per share), then we can easily hit 3,000.
So, why will earnings post another year of 10% growth? There's the boost from a corporate tax cut. But we also have a really great global growth story going on right now. And the U.S. economy is accelerating. We likely won't post much over 3% growth in 2018, but even getting near that number is a vast improvement.
We've been living with the post-crisis stress syndrome for a decade. The future has looked bleak, we worry. I get the sense that is finally starting to change. People who have dropped out of the workforce are coming back. Homes sales are up. There are more IPOs. There are some great investment trends: automation, electric cars and batteries, AI, cryptocurrencies. Optimism might be just getting started.
CORRECT: Let's start out getting some ground rules in place for these predictions. This is all "ballpark" stuff. As in, if I get pretty close, i.e., in the ballpark, it's a win. And a 52-week high of 2,940 for the S&P 500 is absolutely in the 3,000 ballpark.
Not as good as my forecast for 2016, when I missed the target by 16 points. (16! Seriously, it's uncanny.) For 2017, I had the wildly bullish target of 2,425, which was literally the highest target I saw out there anywhere. And the S&P 500 blew it out of the water after Trump's election.
Still it was a win, because I was in the ballpark. My bullish outlook kept my Wealth Advisory subscribers looking for opportunity, and we picked up stocks like Twilio (NYSE: TWLO), +176%, Twitter (NYSE: TWTR), +83%, and Cisco (NASDAQ: CSCO), +57%.
2. Oil does not break above $75. Better global growth will help demand a little. But efficiencies in shale production will keep a lid on price. Saudi Arabia is not willing to make the dramatic cuts that will really lift prices. Russia will not cut anymore. So production will stay basically where it is, and that means oil prices do, too. The only reason I see a possible move to $75 is the ever-present "tension in the Middle East."
CORRECT: OK, so oil hit $76.20. What, I gotta be perfect? Oil beat my target by $1.20. That's 0.016%. If you round 0.016%, it's 0.00%. So it basically didn't happen at all.
3. Gold's range for 2018 is $1,050–$1,350. Gold is right in the middle of its 10-year range. And with my expectation for an overall good year for the economy, I just can't get to the bullish scenario for gold. Plus, cryptocurrencies like Bitcoin are offering competition in the alternative asset space. I think gold rallies early in 2018 — sell that rally.
CORRECT: Gold closed at $1,349 twice in early 2018. It may have traded over $1,350 intra-day, but it never closed there. That's a win, baby!
4. Two rate hikes from the Fed. We've got a new Fed Chair coming in. It's highly unlikely he will immediately hike rates. But as the economy expands and the employment rate stays low, rates will have to rise. Let's say one in June and one in September.
WRONG: I feel like I've done pretty well with this whole ballpark thing. So in order to solidify my theory and put the kibosh on claims that anything at all can get into the ballpark, I'm going to go ahead and say that there's just no way three rate hikes (with the strong possibility of a fourth) is the same thing as two.
5. 2018 U.S. GDP growth hits 3%. Yep, I say animal spirits have been unleashed — Americans come out of their funk and start feeling better about the future for the first time in a long time.
CORRECT: After three quarters of data, U.S. GDP growth stands at 3.3%. Anything better than 2% in the current quarter and I have nailed this one, so get out there and buy something, dammit!
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6. Bitcoin hits $25,000. Right now, Bitcoin and other cryptocurrencies have no utility. No one will spend it, because who wants to be the dumbass that buys $100 million pizza? If you really think Bitcoin has a future, then you want these wild swings to stop. You want it stable. Because then people might actually use it as a medium of exchange.
I think we see the price spikes continue for the first part of the year. But eventually, I see the price stabilizing... somewhere? OK, the standard rule for a bear market is the 61.8% pullback. From a $25,000 top, that projects to $10,000. Oh, a nice round number... See how easy that was? Ultimately, I'd say Bitcoin comes off a $10K floor and stabilizes around $12,000.
WRONG: Hard to believe that just a year ago we were in the midst of the crypto mania. At the time that I predicted a blow-off move to $25K for Bitcoin, it had already hit its highs. So, just wrong. BUT I did get this email from a reader: “I regret not listening to Briton at xmas, I thought what a negative old sod as he doesn't like crypto's but he saw the bloodbath coming, Briton, I think you're the daddy of Angel...”
So I got that going for me. Which is nice. And for the record, I haven't had any luck getting my coworkers to call me “daddy.” That's actually probably a good thing, now that I see it in writing...
7. Tech leads again, followed by financials. Trends in tech are really gaining steam. Chip stocks are actually pretty cheap. Microsoft is likely to break above $100. What's not to like? Bank stocks are gonna love a couple rate hikes coupled with a strong economy and housing market.
CORRECT: Tech crushed it in 2018. We saw both Amazon and Apple make it over the $1 trillion market cap level. Even with the correction we're still mired in, tech was the place to be. And I even threw in a little Microsoft for you. It was $85 when I wrote that. Blew through $100 and had a high of $116 — that's a total of 36%.
And so you know, my plan here is to just ignore the fact that financials didn't do so well. For the combination of safety, upside, and dividend growth, I still say Bank of America (NYSE: BAC) is one of the best stocks you can buy.
8. I don't get eaten by a bear. I need eight predictions, and I need a win.
CORRECT: You're probably wondering how I managed to get through 2018 without getting eaten by a bear. It was basically a matter of eating right and working really hard with my trainer. Plus, I pretty much didn't go into the woods at all. I made the sacrifices, put in the time, and I'm just really grateful to come out with a W here.
Well, there you have it. Six out of eight wins. Even if you wanna throw out the eaten-by-a-bear one — which is fair, cause it's silly — five of seven is still my best year yet. And if you're still wondering about the whole eaten-by-a-bear thing, it was a central theme in my 2018 predictions article. It's a pretty entertaining piece, if I do say so myself. And I do.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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