Swedroe: ‘Sure Thing’ Predictions Batting Zero

October 12, 2016

The sixth sure thing was that with the non-U.S. developed and emerging market economies generally growing at a much slower pace than the U.S. economy—and with many emerging markets hurt by falling commodity prices, slower growth in the Chinese economy, the Fed tightening monetary policy and a rising dollar—international stocks will underperform U.S. equities this year. While the Vanguard (U.S.) Total Stock Market Index ETF (VTI), which returned 9.1%, outperformed the Vanguard Developed Markets Index ETF (VEA), which returned 4.0%, Vanguard’s Emerging Markets Stock Index ETF (VWO) outperformed the VTSMX, returning 16.0%. We’ll call that a draw. Score: 0.

The seventh sure thing was that, after defying the gurus last year, the volatility of the market will rise in 2016. The VIX ended 2015 at 18.2. Following a tumultuous start to the year, since early March (with the exception of a brief period after the Brexit vote), market volatility has been relatively quiet. The VIX ended the third quarter at just 13.3. Score: -1.

Going back to 1896, the first three quarters of the last year of the presidential cycle have all produced below-average returns, although the fourth quarter of that year has produced above-average (almost 5%) returns. Thus, our eighth sure thing is that the first nine months of the year will be disappointing, but we’ll be bailed out by a strong fourth quarter. As we have noted, Vanguard’s (U.S.) Total Stock Market ETF returned 9.1%. That’s well above the historical average for the first nine months of a year. Score: -1.

Final Tally
Our final tally at quarter-end shows that not even a single “sure thing” actually occurred, though there were seven that had the opposite result. Keep in mind that if these predictions were truly “sure things,” most, if not all, should have happened. But there’s hope, as we still have one quarter to go. We’ll report back again at the end of the year.

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.

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