2018 Rhymes With 2000

Wow, I am still surprised that the GDP forecasts are still over 2.5% for 2019.  The economists are still looking at the rear view mirror in forecasting the future.  We just hit the peak of the economic cycle and apparently they've forgotten how the business cycle works.  GDP growth is not a steady ascent to higher highs, its a roller coaster that eventually goes higher due to underreported inflation numbers and productivity gains at the margin.  Mostly underreported inflation numbers in the last 20 years. 

The financial markets have spoken, and the Eurodollars market is pricing in no rate hikes for 2019 and rate cuts for 2020.  While the economists with no skin in the game and with huge rear view mirrors to stare at, are forecasting 1 or 2 rate hikes, just because the Fed dot plots said so.  You can't make this stuff up.  They have short memories.  They forget the Fed forecasting 4 rate hikes in 2016 at the end of 2015, and managing to hike just once at the end of the year, only after Trump got elected and promised a huge budget buster package of tax cuts and a surging SPX. 

Stocks don't lie.  The financials and other economically sensitive sectors are the worst performers this year.  The earnings guidance in October were screaming to investors that the earnings cycle has peaked out.  Yet too many are still believing the Wall St. and economist forecasts, and trusting the small data mined sample sizes where stocks rallied after huge selloffs. 

SPX April 1991-April 2001

SPX December 2008- December 2018

Here is what happened from April 2001 to April 2003

Is that a preview of December 2018 to December 2020? 

Economic cycle and Fed funds rate peaked in 2000, same as 2018.  We had a massive tech bubble in 2000, similar to what happened with FAANGs in 2018. 

It probably won't be as bad as 2000-2002, but looking at the big picture there is still a lot of downside ahead. 

I sold some SPX longs at the close yesterday, and will dump the rest on the next strong rally, probably next week.  I will buy back what I sold today at the close if SPX goes down to 2400 or lower.