As the calendar turns over into a new quarter and a new year, it’s time for not only a quarterly update, but a new annual forecast.  In this post we’ll discuss the year end Synthetic Systems charts and their forecast for the year ahead and beyond.  As always, you can find the latest updates as well as several years’ archives under the Market Analysis link on the site menu.

First let’s review where we’ve come from, starting with a look at the SS forecasts from one quarter and one year prior.  These charts plot total returns for the major asset classes noted on the key in the upper left corner, extending from the past into the future.  As we move through time, the plots move to the left, crossing the dotted line denoting the present.  Readers will also notice the naming convention for SS uses whole numbers for annual runs and decimals for quarterly charts.

At the beginning of last quarter, SS forecast a stock market crash, rising TBill yields, a rally in TBonds, and a dip in commodity prices.

Synthetic Systems 2018.75

Synthetic Systems 2018

As shown in the succeeding charts, this quarter kicked off with the expected stock market crash. TBonds rallied as predicted, but only after dipping into early November first. Copper and gold prices were much less volatile than forecast; instead oil prices plunged.  The same broad theme was reflected in the annual forecast at the beginning of the year.

Synthetic Systems 2019.00

Synthetic Systems 2019

Now let’s look forward.  The leveling off of the TBill line in the current forecast suggests that short term interest rates (reflected in the slope of the plot) will decline in the coming year.  TBond rates are forecast to fall as prices rise, consistent with our earlier call that a new cyclical bull market in Treasuries started in early November.  Stocks are forecast to remain in a bear market for about another year or so; this is the same bear market that SS has been forecasting for 2018 since the beginning of 2015. Although some violent rallies are expected between now and then, SS sees the bear continuing into early 2020.

We can see another bull market taking shape after that point, however, not only in stocks but in commodities as well. This implies a declining USD and the return of inflation. It also implies that foreign stock markets will outperform US stocks. Bear in mind that by then we expect further SS updates that will change or refine that forecast.

Happy New Year!