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Predictions 2019: The Year in Review

Written by Briton Ryle
Posted December 18, 2019

You don't have to be right to make money in the stock market. Sure, you can be absolutely convinced that a stock you are researching is going to go higher. And if you load all your eggs into that basket, you could do very well. 

But the reality is that even the most exhaustive and thorough due diligence really amounts to the equivalent of an educated guess. Because there are no absolutes in the stock market. Refineries catch on fire sometimes. Suppliers raise prices. The SEC launches investigations. We get hurricanes, freak snowstorms, surprise layoffs... 

Just the other day, Amazon announced that none of its second-party sellers can fulfill Prime orders via FedEx. The stock tanked $5 — but who saw that coming? 

Warnings bells should go off the minute you think, "I know what's going to happen." If you're certain about anything, you're doing it wrong. 

A lot of successful investors will tell you that making money in the stock market is about managing risk. And it's true. The very essence of managing risk is an assumption that you might be wrong.

Personally, I like to think about it a little differently...

I have no problem accepting that I might be wrong about something. I'm in my mid-50s — I've screwed up plenty of things in my half a century. Like the time I renovated the main bathroom in my old house. It took four months, I broke a toilet, leaked water into the living room ceiling, and bought four times the trim that was needed because I'm a terrible carpenter. 

Investing takes conviction. I really don't see how anyone can make an investment or a trade without thinking they are right. Why else would you put money at risk? 

I always invest/trade with conviction. I also reserve the right to change my mind when presented with new information. If that new information means that my investment/trade was a mistake, so be it. 

This is why I do predictions. They are my roadmap. Predictions are my blueprint against which I assess new information.

Now, let's get to what I thought was going to happen in 2019. And on Monday — the day before Christmas Eve — I'll send you my predictions for 2020.  

1. The S&P 500 high is 2,900. I am less bullish on stocks than I have been in 10 years. 2018 was a barnburner for S&P 500 earnings, up like 25%. That is a tough act to follow. Earnings aren't very likely to grow more than 5% in 2019. And it seems to me there are more threats to earnings than there are catalysts for earnings to outperform. I mean, we still have no resolution for tariffs. And China's economy itself is giving off all kinds of warning signs. Simply put, the U.S. economy will take a hit if China goes into recession.

Last year at this time, the forward P/E for the S&P 500 was 18. Today it's about 16. Investors have already priced in lower expectations... but are they low enough? We will get fourth quarter earnings numbers in early February. They will be good, but guidance likely won't be. The reaction likely dictates the next six months of trading.

WRONG: The S&P 500 started the year at ~2,500. Stocks had tanked, the Fed was being criticized for hiking rates... so my call for a 16% rally was pretty darn bullish. And my bullish expectations kept me and my Wealth Advisory subscribers on the right side of the market all year. I was also correct that earnings would be weak. Still, I missed the year-end level by a pretty substantial margin. Gotta take the "L."

2. U.S. GDP does not beat 2.5% (and probably comes in closer to 2%). I hate to stick with the negative theme, but I expect U.S. GDP growth to revert back to those ~2% levels. Terrible? No. But not strong, either. And that comes with a host of implications for consumer confidence, employment growth, and stock prices. The year-over-year comparisons won't look good.

We've already seen some companies (Starbucks, Cisco, GM) lay off workers. All you need is two consecutive quarters of negative growth to officially be in a recession. Odds of that are probably 50/50 at this point. Government deficit spending has exploded this year, accounting for a large part of GDP growth. Look for that to change now that the Democrats control the House (yeah, I said it: the Dems reel in spending). 

CORRECT: GDP remains on the weak side as global demand remains stuck. 

3. Just one interest rate hike in 2019. It's simple: I think a bunch of weakening economic data keeps the Fed on the sidelines next year. 

WRONG: I got it right that the Fed would be cutting, but I underestimated by how much. 

4. Gold still can't break $1,350. Weak growth, yes. But gold still can't get moving. After all, like any asset, gold is a liquidity trade. There has to be money available to buy it. That's why gold didn't really rally until after the financial crisis (when the Fed was really pumping). Investors raise cash when the stock market is weak. That means selling gold, too.

WRONG: Gold did beat $1,350, though not by much. 

5. Oil cannot beat $80 a barrel. The Saudis have opened the spigots, but that likely won't last. They will want higher prices as the Aramco IPO gets closer. Problem is, demand from China is likely to be weak. U.S. shale will not be slowing down. It's pretty easy to imagine oil falling back into the $40s, especially early in the year.

CORRECT: Demand barely grows; the upside for oil looks permanently capped as the higher fuel efficiency and electric car sales have a bigger-than-expected impact. 

6. Tech is the leading sector, but it's not awesome. These days, tech is basically Apple, Google, and Microsoft (Amazon is consumer discretionary). Apple is hitting a slow spot for handset sales, yes. But the company is so much more than handsets these days. The big investors know this, and they will continue to let the dividends and share buybacks work for them.

The forward P/E for Apple is already down to 12. Don't look for it to go a whole lot lower (unless tensions with China really heat up; then all bets are off). I don't expect a lot of upside for chips, but not a lot of downside, either. Pay attention to mobile equipment stocks like Nokia. 5G gets moving in 2019. Disney could be a great performer, too, as it launches its own network. There's also a decent case for utilities in 2019.

CORRECT: Tech led, but if you look at the way software stocks traded, it definitely wasn't all awesome. Wealth Advisory subscribers have +30% gains in Disney.  

7. Bitcoin. I like the idea of cryptocurrency. I really do. But I do not see why one crypto should be worth $10,000 and another should be worth $100. We already have a way of valuing things. It's called the U.S. dollar. Works pretty well, too. I think 2019 is the year Bitcoin gets so cheap you almost have to buy a little. And I mean like, spending $100 or $200 just so you can have a little. (Remember, you don't buy whole Bitcoin. You buy increments.) So where's that point? $1,000? $500? Where's the point where you would think, “Ya know...”? I think it's probably under $1,000...

WRONG: I got the basic action right, that there would be a rally after the price hit some significant lows. But my numbers were off, so I'll take the "L" here, too. 

8. Cannabis stocks. So, I've got cannabis and Bitcoin right here next to each other. That's a coincidence. The two are nothing alike. Cannabis is a legitimate consumer product that likely has some pharmaceutical applications, too. Companies can sell it, and do so profitably. So it can be valued.

I don't think we actually get to legal cannabis at the federal level in 2019. But I do think the path to fully legal cannabis becomes crystal clear in 2019. We can expect to learn a lot more about established companies' plans. We will hear about partnerships. Canada is reportedly still working out supply issues. The U.S. market is at least 10 times bigger. And if the stock market continues to correct, you know what to do: Add the best weed stocks on the cheap. But please, pay attention to valuation, and make sure there is a solid plan for profitability.

WRONG: I got it right that we wouldn't get cannabis legalized in 2019. But cannabis stocks have been terrible performers. This will change at some point, and it seems to me there is some value in the best cannabis stocks. But the momentum for legalization has dried up. 

Okay, there you have it. I was right on only three of my eight predictions. But again, you don't have to be right to make money. The Wealth Advisory's 2019 recommendations did very well.

We got 20% out of The Stars Group when it got bought out. And we got another 20% out of last January’s recommendation of Nvidia.

And we got +30% out of Disney, StoneCo, and Teladoc and a really nice 42% out of Maxar. 

The underperformers were: 5% on Chewy, 2% on MGM Growth Properties, November's stock is down 2% (but it's only been a month, so that barely counts), FedEx was a 7% loss (that could have been much worse if we didn't change our minds when presented with new information), and Pivotal Software was the big loser at -26%. 

That's 9 winners out of 10. Pretty good. Remember, tune in Monday for 2020 Predictions!

Until next time,

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Briton Ryle

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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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