2019: A Year of Surprises

Earlier this week, I laid out my five predictions for 2020. I also promised to review how my 5 Predictions for Investors in 2019 turned out.

I said then that “I’m not afraid to admit when I’m wrong.” That’s a good thing because most of my expectations for last year were off the mark.

Of my five predictions, only one of them proved correct. Below, I’ll go over each one and explain where my reasoning went awry.

The average closing value of the VIX will be 20% higher

The CBOE Volatility Index (VIX), also known as the “fear gauge,” compares the ratio of short-term put and call options on the S&P 500 Index. Put options increase in value when the index goes down, while call options increase in value when the index goes up. The VIX spikes in value when a lot of investors get nervous and start buying more put than call options.

Over the past five years, the average daily closing value of the VIX was 15.1. In 2018, that number rose to 16.6 and I expected it to rise even higher in 2019. Instead, it actually dropped to 15.4 last year.

The VIX is more of a trailing indicator of market sentiment, spiking after the stock market has taken a hit. That didn’t happen in 2019, but this prediction could ultimately prove true during the second half of 2020 as investors focus on the general election.

The monthly U.S. unemployment rate will hit 4.5%

Although the unemployment rate ticked up to 4.0% last January, it dropped to 3.8% the following month. By November, it was down to 3.5%. That’s as low as it has been in 50 years!

I wrongly feared that “companies will start reducing headcount in anticipation of a recession.” That did not happen. Instead, nearly 2 million net new jobs were added to the economy.

That’s great news and the trend is likely to continue into 2020. Politicians running for reelection know that an unemployed voter is an angry voter. Accordingly, I don’t expect any changes in economic policy heading into the general election in November that might drive unemployment higher.

The FTSE will outperform the Dow Jones Industrial Average

The FTSE 100 is the London Stock Exchange’s equivalent of the Dow Jones Industrial Average. At the time I made this prediction, I expected the European companies that comprise the FTSE 100 to benefit more from lower oil prices than American companies.

That proved true, but not nearly to the extent I anticipated. In 2019, the FTSE gained about 12%, which represents the best result since 2016 but only half the return posted by the DJIA.

Oil prices remained fairly constant throughout the year, proving to be neutral for the global economy. The dominant macroeconomic themes from 2018 – Brexit, low inflation, and trade tariffs – continued into 2019.

The euro will rise above 1.25 U.S. dollars

Since my expectation for a strengthening European economy proved only partially true, this prediction also did not pan out. In fact, just the opposite occurred as the euro fell slightly over the course of the year.

A stronger dollar means more purchasing power for Americans buying goods manufactured overseas. However, that gain is negated by increased trade tariffs on many of those goods. I don’t expect a reversal in relative currency values to occur until the U.S.–China trade war has been settled.

Until that happens, we can expect the dollar to remain strong. Although good news for American consumers, a robust greenback could prove a problem for U.S. manufacturers that rely on overseas sales for most of their income.

Gold will get back above $1,500 per ounce

At last, the one prediction that I nailed! After spending the first five months of 2019 trundling along around $1,300/oz the price of gold shot above $1,550 by late August. It has since dipped in value, closing the year near $1,500.

Not only was I correct about gold jumping in price, but I was also right about the reasons why. I said then that, “A disconcerting combination of rising inflation and geopolitical instability” would push the price of gold higher.

Geopolitical instability in the form of an escalating trade war between the U.S. and China was present throughout the year. There was also a noticeable uptick in inflation. At the start of the year, inflation, as measured by the consumer price index (CPI), was growing at an annual rate of 1.6%. By November, that pace quickened to 2.1%.

I felt so confident in my expectation for rising gold prices that I added two gold miners to the Personal Finance Growth Portfolio. In January, I recommended Barrick Gold (NYSE: GOLD) to my readers when it was trading below $12. It closed the year near $18 for a gain of more than 50%. In May, I recommended B2Gold (NYSE: BTG) and watched it increase more than 40% in value by the end of the year.

I’m proud of those results and hope that you were able to profit from them, too.

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