At this time of year many market analysts make their predictions for the next twelve months.  They make for interesting copy, but don’t read too much into them.  In most cases their record is not good.  Here’s my safe prediction for 2019:  Stocks will be volatile!  Now some more:

Prediction #1.  Although the Fed plans to raise rates two times, I’m in the “none or one” camp.  I have long felt that the market dictates to the Federal Reserve, not the other way around, and I've seen just how it does many times. Clearly, Fed chair Powell disagrees.  Powell believes the economy and labor market are and will be strong enough to tolerate more increases and that inflation will remain a non-event.  Investors see it another way, which is why prices are falling.  In the end, the Fed won’t push rates far and weakness in equities and junk issues is a worry to them.  Powell won’t succumb to the pressure from Trump, but he will succumb to the pressure of the market.

Prediction #2.  Imports from China will fall.  Because of tariffs this sounds like an easy prediction, but paradoxically imports are currently at record highs.  My thought is that imports are spiking now in order to get ahead of even higher tariffs.  Of course, this doesn’t mean overall imports will fall.  That’s because U.S. firms are simply shifting production from China to India and the Philippines. 

Prediction #3.  Active daily Facebook (FB) users in the U.S. will fall.  That will be bad for the stock because usage of its core news feed is its largest revenue source.  The company will attempt to offset the decline by including even more ads, which will be another turn-off for consumers. 

Prediction #4.  The economy will grow about 2 percent after inflation.  There is currently a disconnect between what economists expect (growth of around 2.5 percent) and what the market seems to be pricing in (slow or no growth).  Although economics is known as a dismal science, I’m going with the economists.  Consumer spending is two-thirds of GDP and I don’t see it retreating.

Prediction #5.  The stock market will rise by an above average 15 percent.  Previously I expected stocks would have below-average returns as we move forward, but the more stocks fell in December the greater the odds of a good 2019.  The seven worst quarters since 1940 all had losses greater than 17 percent (that’s worse than 2018 Q4).  One year after those bad quarters stocks were up on average 23 percent!  Your emotions may say otherwise, but better buying opportunities come after market weakness.