Blue Point Trading, mid-year review. At Blue Point Trading we like to do a yearly market predictions in early January of each year to set the tone for the year – click here. Let’s have a look at what we wrote and see how correct were and do any updates to these predictions.
We did a video blog on the longer term (weekly charts) then and now (see this comings Monday’s video blog) and judge the accuracy for yourself. When reviewing the blog from January 2, 2014, I would grade myself about a B+ to A-. About 60% to 70% were fairly correct, which in trading terms is good. The point here is that you too should do this. If you get the longer term correct, and keep it in the back of your mind. When trading against the longer term trend, it should raise a cautionary flag.
In terms of key 2014 themes and risks, they continue to hold mostly true. Climate change has yet to rear its ugly head though. Obama has dodged many of the geopolitical risks without starting any major wars, but trouble is brewing. His hand might get forced, as his tough talk and do nothing approach, allows the bad people to flourish. The US main street is doing better, while the EU is still a basket case. Central bank policy largely still dominates the trade. Major updates? Not really, the themes continue. The only thing I will say is, that as the problems continue to mount, the risk of a geopolitical or central bank policy missteps increases, until a crisis emerges. It will be then the masses may rise up and demand change.
The following were the January 2014 market predictions with updates and commentary:
- Equities to finish up 5% to 7%. In the first half of the year we could see an equity exhaustion move of 10% to 15% up and falling back toward the back half of 2014.
Update: SP500 up 6.75% YTD, so perhaps a bit too bullish but the trend is correct. We are still looking for downside in the fall. So we will hold with the original prediction.
- Bonds to finish flat to down 5%. The economy would have to have a significantly more robust output to push Bonds further down.
Update: 30 Year Bonds are about +2.5% YTD, so perhaps a bit too bearish. I would update this prediction to just flat. We do not see any major increase in rates.
- The Dollar could remain flat to down 5%. Global central banks to continue to play the liquidity game in a race to the bottom, though they all will try to remove stimulus. But at the beginning of 2014 we could see a bit of dollar weakness on the risk-on trade. Inflation could perk up closer to 1% to 2% on improved economic results.
Update: Dollar is flat YTD, so perhaps a bit too bearish. I would update this prediction to just flat.
- Commodities up 5% to 10% on dollar weakness and improved economic results. Many commodities are near weekly lows.
Update: The CRB is +5.5% YTD, in line with predictions. So we will hold with the original prediction.
- Real GDP to average 2.5% to 3.5%, as we move into the final stages of the current business cycle.
Update: GDP numbers are a little bit harder to judge. A -2.9% for Q1 might get offset in Q2 with minor gains in the remaining quarters. So perhaps a bit too bullish. I would update this prediction to US GDP being 1.5% to 2%.
- Corporate earnings (profit after tax) look to improve again slightly at around 5%, reflecting the improved economic outlook. However, the 2013 great performance will be difficult to repeat, companies are already running at a good efficiency level, PE expansion slow down and the coming end to the current business cycle may keep advances in check.
Update: SP 500 EPS is in Q1 2014 of 24.87, down from 26.48 last quarter and up from 24.22 one year ago. This is a change of -6.08% from last quarter and 2.68% from one year ago. So perhaps a bit too bullish, but a rebound could be coming in the remainder of the year. So we will hold with the original prediction.
The quite summer time trade is lulling a lot of people asleep, I am left wondering if an autumn surprise is coming.