The Coronavirus Downturn: Fact-Checking the Speculators

As the markets go through an entirely normal correction process (triggered by a viral epidemic), it is interesting to go back and look at the people who say they predicted this downturn. One of the jokes on Twitter among professional investors these days goes something like this:

Bears Then:

Dow 23,000 – “This is the top!”

Dow 24,000 – “This is the top!”

Dow 25,000 – “This is the top!”

Dow 26,000 – “This is the top!”

Dow 27,000 – “This is the top!”

Dow 28,000 – “This is the top!”

Dow 29,000 – “This is the top!”

Bears Now:

Dow 25,000 – “Told you!”

Nothing Is a Sure Thing

More broadly, an economist named Larry Swedroe compiles an annual list of predictions that market gurus make at the start of the year, teases out the “sure thing” predictions that were made, and then looks at the end of the year to determine their accuracy.

  • Among the January 2019 predictions: U.S. economic growth will continue strong through the year, slowing slightly from 3% to 2.7%. The full-year growth rate ended up at 2.3%; this sure thing was wrong.
  • Corporate profit growth would continue to be strong; S&P 500 earnings would reach $178 a share, up about 8%. Operating earnings fell to $162. Wrong again.
  • Bloomberg gathered 14 forecasts whose prediction was that the S&P 500 would go up 11% for the year. The 11% forecast was off by about 20%, but Swedroe generously gave this one a “right” score.
  • Longer-term bonds were predicted to outperform. They did; long Treasuries returned 14%, compared with intermediates at 6%. This one was pretty much on the money.
  • Fed policy and the European Central Bank unwinding its easy monetary policy would cause the dollar to weaken versus the euro. The dollar finished the year slightly stronger — wrong prediction.
  • Concerns over massive budget deficits and a weaker outlook for the dollar would lead to a strong performance for gold. Gold did go up about 15% — this one was on the money.
  • Due to the Brexit challenges and various U.S.-initiated trade wars, the prediction held that the VIX index and volatility generally would spike. As it turns out, the VIX finished the year well below its 2018 ending value. Wrong again.
  • Final score?: four winners (and Swedroe was generous) and four losers.

There’s a chart that shows each year’s “sure things” going back to 2010, showing that the sure-thing predictions were right just 34% of the time. Remember this the next time somebody tells you they “knew” the market was going to fall, or that they know what’s going to happen next. Nothing is a sure thing.

Stay Diversified, Stay YOUR Course!

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