The tree is decorated, the dog is wearing his sweater, and it’s time for the most sacred holiday tradition of all: The predictions column for the new year.
But as Rodgers and Hammerstein almost said in “The Sound of Music,” how do you solve a problem like The Donald?
Looking back at 2018, nothing scrambled more predictions than the president of the United States. The biggest one he messed up for MarketWatch readers was the stream of predictions about where the S&P 500 Index
SPX, -2.08%
would be at the end of this year. The big guesses were 2,750 points, 2,850 and 3,000 this time last year. That was a time when investors took the president’s tax cut literally and his trade policy’s potential to curtail global growth less than seriously.
Read: Trump makes last-ditch effort to sway the Fed with ‘take the victory’ tweet
Me, I was at 2,730, a forecast I raised to 3,000 in January after Trump signed the corporate tax-cut law before Christmas. As I said then, one thing we know for sure about corporate tax cuts is that they raise after-tax profits on the same economic activity. And they have: Profits at S&P 500 companies are up more than 20% this year through September, CFRA Research says. Next year, when tax rates stay the same, they’re projected to rise only 5%, an estimate that has fallen by half since September, when the S&P 500 topped 2,930 and the Dow Jones Industrial Average
DJIA, -2.11%
neared 28,000.
“A tailing off of the trend is the theme for 2019,” CFRA strategist Sam Stovall says.
Trump’s trade costs
Especially after September, the president happened. Specifically, he followed up on threats of trade sanctions against China, Mexico, Canada and others that he had put on hold during the tax debates, lulling many investors into a complacent assumption that trade battles would never happen.
But they did. And it cost everybody
Trade tensions had shaved 6% off the S&P 500 by Dec. 5, Merrill Lynch economists estimated. If you guess, not unreasonably, that the tab for trade tensions is now around 8% after a rocky week, that means trade — read: Trump — cost an average 401(k) barely-millionaire $80,000 on paper.
Put another way, 92% of 3,000 is 2,760, making Trump nearly all of the difference between the S&P 500 we have (2,581 at this writing, down about 3% this year) and the one we thought we’d have. (He accounts for all the difference between the 2,850 forecast that Morgan Stanley made this time last year and today’s prices.) The rest of the gap from 3,000 you can mostly chalk up to the Federal Reserve raising interest rates faster than it should in a shaky housing market, raising recession fears.
There are also tons of blown 2018 predictions that have little to do with Trump. Some highlights:
Bitcoin’s rising tide
Remember hedge-fund manager Tom Lee claiming that bitcoin
BTCUSD, -0.65%
would hit $25,000 this year? We do! Tom would like to forget, but maybe not as much as suckers who actually bought options last December betting bitcoin would hit $1 million.
It’s at $3,458 per “coin,” still $3,458 too much for a made-up form of “money” that almost no merchants accept and which enjoys the support of no truly liquid trading market and no central bank. It was news this year when J.P. Morgan Chase CEO Jamie Dimon called cryptocurrencies, including bitcoin, a fraud, but it shouldn’t have been.
I’ve written about bitcoin twice — both times saying it was worthless as it approached $20,000 last December. I’ll stick to zero, but I have no idea how long it takes to unravel the rest of the way.
Tesla’s coming collapse
This once-popular prediction blew up when Tesla
TSLA, -4.73%
finally figured out how to make enough Model 3 sedans, which they pre-sold long ago, to turn profitable in 2018’s third quarter. Which made tasty hash of John Thompson of Vilas Capital Management’s March prediction that Tesla would be toast by July. (Thompson, to be fair, had lots of company.) Hash goes nicely with toast, John.
Instead, Tesla’s stock is up about 14% this year, and 2019 forecasts are rising, pretty rationally given that newly profitable companies normally become much more profitable rapidly as they keep growing.
I was all over the place on Tesla in 2018, as CEO Elon Musk’s odd behavior raised prospects that he might actually blow what I saw as a clearly winning hand. My harshest call was that Tesla’s directors should fire Musk if he wouldn’t hire a chief operating officer, naming board member Robyn Denholm as a candidate.
Instead, the Securities and Exchange Commission made Musk accept a new board chair as penance for manipulating Tesla shares by claiming on Twitter he had “funding secured” to take Tesla private at $420 a share.
That chair? Why, Robyn Denholm!
Three cheers for dumb-lucky guesses!
The wild card
But … back to Trump.
My own biggest 2018 mistake was being too fast to dismiss Trump as irrelevant to the real economy (which he is), and to assume this meant he’d have only the most transient effect on markets. That effect has lasted long enough to wreck this year’s returns, at least. Clearly, y’all listen to Trump more than you should, if only because he’s president.
Which begs the market’s most important question for 2019. How long will Trump be president?
It’s a question many others add up to. Will a recession begin, with a Democratic Congress and a president in deep legal jeopardy too at odds to craft a response? Will the Federal Reserve raise interest rates, either too fast or too slowly, in subconscious response to Trump’s Twitter feed?
On that, here’s the best prediction I’ve seen, courtesy of venture capitalist M.G. Siegler.
“This was always going to end with Trump, alone in his room, watching Fox News as they cut live to footage of Trump, alone in his room getting arrested while watching Fox News,” Siegler tweeted in April, in a note he recently reposted with a comment that he had been joking but now was serious.
Yes, Trump’s situation might be that parlous. Yes, I’ll plunk down my money on a big relief rally if he falls. Whether things are really going there is the market’s top 2019 issue.
Tim Mullaney covers economics and investing for MarketWatch.
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