2020: A Year of Hits and (Many) Misses
The events of the past 10 months remind me why making predictions can be an exercise in futility. A year ago, I issued my annual list of predictions for 2020. They are listed below with a brief summary of how they turned out.
Of course, I had no way of knowing that a global pandemic was about to sweep through the world with alarming speed. Had I known that, I may not have made any predictions at all.
Nevertheless, predict I did. It did not take long for my expectations for last year to crumble under the weight of COVID-19. Primarily for that reason, only one and a half of my five predictions came true in 2020.
Single-Digit Growth in the S&P 500 Index
I expected the stock market to post a modest return last year. However, I did not expect the double-digit gain it racked up despite the coronavirus pandemic crippling the economy. I also said, “I expect a stock market correction of at least 10% during 2020.” Not only did that come true, but it happened more than once.
From its intraday high on February 19 to its low on March 23, the S&P 500 Index fell 35%. In September, the index fell 10.6% for its second correction of 2020. These days, a decline of 10% doesn’t bother investors as much as it used to since the stock market can quickly recover that amount within a matter of days or just a few weeks.
CPI Above 2.0%, GDP Below 2.0%
A split decision on this one. At the end of November, the Consumer Price Index (CPI) for All Urban Consumers increased by 1.2% over the prior 12 months (before seasonal adjustment). The figure for December was not available in time for inclusion in this article, but it is safe to assume that it will not drive the annual growth rate above 2.0%.
We also do not have the December figure for gross domestic product (GDP), but it is equally safe to assume that it will not drive the annual growth rate above 2.0%. Through the end of October, GDP had contracted by 0.69% over the previous 12 months. That result may improve somewhat over the last two months of this year, but not enough to completely offset the damage done to the economy over the past 10 months.
Crude Oil Will Trade Above $70/BBL
This prediction was looking good in January when the price of oil traded above $65 a barrel. But then the coronavirus pandemic upended the energy sector to the extent that the futures price for crude oil actually turned negative for a brief period in April. There was nowhere for oil producers to store their output so they paid refiners to take it off their hands.
Recently, the price of oil has rallied above $48 a barrel, but that is still 20% below where it was trading a year ago. At that price, many producers can barely eke out a profit. That explains why my next prediction had absolutely no chance of coming true once COVID-19 entered the scene.
Energy Sector Outperforms Tech Stocks
By far, this was the biggest miss of them all. Not only did tech stocks outperform energy stocks, but the tech sector was the best performing sector last year while the energy sector was the worst.
Read This Story: Sector Review: The Leaders and Laggards of 2020
Again, that is mostly due to the economic distortion caused by COVID-19. As millions of Americans started working from home instead of commuting into the office, demand for gasoline plummeted. At the same time, airline travel dropped nearly 80% which also suppressed demand for aviation fuel.
Bitcoin Falls Below $5,000
When I made this call a year ago, Bitcoin (BTC) was trading above $7,200. For this prediction to come true, Bitcoin would have to drop by at least 30%. That happened less than 90 days later. On March 12, Bitcoin traded below $4,900. The next day, it bottomed out near $4,100 before rallying strongly to close above $5,000.
Since then, Bitcoin has been on a tear. In July, Bitcoin broke above $10,000. Last week, it rose above $28,000 to its highest price yet. If you had the courage to buy it nine months ago, you could have more than quintupled your money.
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