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Fact: 2019 has proven there’s no way to predict the markets

By Stuart Ritchie - December 24, 2019

If you're a regular reader, you’ll know my thoughts on stock pickers.

Those who try to forecast market movements...

May as well enter a casino and place their life savings on red.

2019 has shown us many examples of this unpredictability.

Here are some examples...

Thank you to Dimensional Fund Advisors...

For showing us the many examples of the randomness of markets served up this year.

Interest rates that US policy-makers expected to rise... fell instead.

American consumers’ confidence weakened as the year began.

News headlines broadcast fears of an economic slowdown.

But investors who moved onto the sidelines may have missed the gains in the US stock market.

Investment code

As of the end of October, the S&P 500 was up more than 20% for the year on a total-return basis.

That puts it on course for the best showing since 2013, should that gain hold through December.

Greece, whose economic crisis was so dire some expected the country to abandon the Euro earlier this decade...

(Not to mention their equity market lost more than a third of its value last year),

Has had one of the most robust stock market performances among emerging economies in 2019.

On top of that, Greece issued bonds at a negative nominal yield, which means investors paid for the privilege of lending the government cash.

It’s a reminder that the prediction game can be a losing one for investors.


Up or down?

A closer look at interest rates and the bond market shows just how unpredictable asset performance can be.

Going into 2019, Federal Reserve officials expected economic conditions to support raising a key interest rate benchmark twice.

Instead, policy-makers lowered it three times.

In the market for US Treasuries...

Where market participants set interest rates...

The yield curve that tracks Treasuries inverted for the first time in more than 10 years, as seen here:

Exhibit 1 Shifting Curves

Source: ICE BofAML fair value government spot yield. ICE BofAML index data © 2019 ICE Data Indices, LLC.

Some long-term yields fell below some short-term yields over the summer.

What’s more, yields on medium- and long-term bonds were at historically low levels at the start of the year, but they fell even lower by the end of October.

Investors who made moves based on the expectation yields would rise in 2019 may have been disappointed in how events ultimately transpired.


Trading places

Events weren’t any easier to anticipate in the global equity markets, where no evident link appears between markets that performed well last year...

And those that have excelled this year:

Exhibit 2 Changes in the Ranks

Source: MSCI country indices (net dividends) in USD for each country listed. MSCI data © MSCI 2019, all rights reserved. 2019 YTD as of 10/31/19.

Note: Emerging economies do not include Argentina and Saudi Arabia, which MSCI classified as frontier and standalone, respectively, prior to May 2019.

Among the 23 developed market countries, only one country was a Top 5 performer for 2018 and 2019: the US.

Last year’s strongest performing market— Finland—ranked 22nd this year through the end of October.

Among emerging markets, Greece swung from a 37% decline last year to a 37% advance this year through the end of October.

Dizzy yet?


Perennial wisdom

History has shown there’s no compelling or dependable way to forecast stock and bond movements, and 2019 was a case in point.

Neither the mainstream fortune tellers nor the hindsight of recent strong performance predicted outcomes in 2019.

Rather than basing investment decisions on predictions of which way debt or equity markets are headed...

Which is exhausting and a complete waste of time...

A wiser strategy would be to hold a range of low-cost investments that focus on systematic and robust drivers of potential returns.

Investors who were broadly diversified across asset classes and around the globe were  able to potentially enjoy the returns that the markets delivered thus far in 2019.

Last year, this year, next year...

That approach is a timeless one.

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