5 Predictions for Investors in 2019
A little over a year ago, I published “My 5 Predictions for 2018.” At that time, I predicted:
- The price of oil will rise above $70 a barrel.
- The price of Bitcoin will drop by more than 50%.
- The S&P 500 will end the year with a loss.
- The FOMC will raise the Fed Funds above 2.5%.
- Amazon’s (NSDQ: AMZN) share price will drop below $900.
I reminded readers: “Please don’t forget that three out of five ain’t bad!” And that’s exactly what happened. I nailed the first three predictions, barely missed on the fourth, and was dead wrong on the fifth.
I’ll stick my neck out again and make these five new predictions for 2019.
The average closing value of the VIX will be 20% higher
For much of 2018, the CBOE Volatility Index (VIX), or “fear index,” remained below a reading of 15. That level is widely interpreted as a sign that there isn’t much risk of a correction in the stock market.
Of course, that misperception was proved wrong by the fourth quarter’s steep plunge. A late-year spike in the VIX pushed its average daily closing value to 16.6. That is about 20% below the average closing value of 20 that I expect to see this year.
The monthly U.S. unemployment rate will hit 4.5%
At some point in 2019, companies will start reducing headcount in anticipation of a recession. The last time the monthly unemployment was at 4.5% was in March of 2017. Since then, it has dropped steadily to below 4%.
However, once consumers cut back on spending it won’t be long until employers start reducing their payrolls.
The FTSE will outperform the Dow Jones Industrial Average
The Financial Times Stock Exchange 100 (“FTSE”) consists of the 100 largest companies listed on the London Stock Exchange. For that reason, the FTSE is regarded as a proxy for the overall health of the western European economy. It’s been flat for the past five years as the continent has struggled to agree on economic policy. Meanwhile, the Dow Jones Industrial Average gained 50%.
Neither stock market will be particularly strong this year. However, the European economy should benefit more from lower energy prices since it consumes far more energy than it produces.
The euro will rise above 1.25 U.S. dollars
Yes, that happened a year ago when the U.S. stock market briefly fell 10% in less than two weeks, but after that the euro quickly retreated to roughly 1.15 greenbacks per euro.
However, rising gold prices (see below) and the expanding federal deficit will conspire to weaken the dollar this year, pushing its exchange rate back above 1.25 to the euro.
Gold will get back above $1,500 per ounce
Despite the stock market’s extreme volatility during the past year, the price of gold never strayed more than 7.3% from its average daily closing price of $1,270/oz in 2018 (see chart below).
The yellow metal gained value in December when the stock market went off the rails, ending the year at $1,281. A disconcerting combination of rising inflation and geopolitical instability will scare more investors into gold in 2019, pushing its price above $1,500 for the first time in more than five years.
A Gold Plated Protection Plan
Of my five new predictions, it is this last one that I feel most confident. If I am correct, then adding some form of gold exposure to your portfolio could be immensely helpful. Not only would it improve your overall return, but it should decrease the portfolio’s volatility at the same time.
If you don’t know enough about gold to pick an individual stock, then buying an ETF is the way to go. The SPDR Gold Shares ETF (NYSE: GLD) owns gold bullion so its share price should move in lockstep with the price of gold. As its name suggests, the Van Eck Vectors Gold Miners ETF (NYSE: GDX) owns shares of more than 40 gold mining companies so its share price may not always move in the same direction as gold prices.
What we do not recommend is buying physical gold. It can be easily be misplaced or stolen if kept at home. Also, the transaction costs of buying and selling small quantities of it can greatly reduce your net profit.
As I’ve just explained, the stock market faces mounting risks. But there’s a way to make money, whether the market goes up, down or sideways.
My colleague Linda McDonough, chief investment strategist of Profit Catalyst Alert, has devised a money-making system that doesn’t care about volatility. Over the past three months, her system has generated total gains of 592% for her followers. That’s enough to turn $5,000 into $34,600.
Want to know how she does it? Click here for details.
Editor’s Note: The chart below was added after this article was published in response to a reader’s question asking for the correlation between gold and tech stocks over the past ten years.