We look back at what Wall Street and man on the street had to say to find out who got it right.
2016 is over, and it is time to take stock of the past 12 months. There was the granddaddy of surprises: maverick businessman Donald J. Trump rising to the top of the political heap. Few predicted that.
But what about our other predictions and expectations?
Here at Money Talks News, we started the year by comparing Wall Street professional predictions for the stock market, oil prices and housing to those made by the man on the street. You can review the predictions here, and then keep reading to find out if Wall Street or Main Street got it right.
Stock market surprise
At the start of 2016, Goldman Sachs considered the market overvalued, after it had tripled in value since 2009. There were growing international tensions, especially in the Middle East, and China’s gigantic economy was slowing. There was a major market slump in February, and fears were generated by Brexit, the United Kingdom’s vote on June 23 to separate from the European Union.
The prominent Wall Street investment bank predicted the market would remain flat for the year. Our man on Main Street was a little more optimistic, predicting about 5 percent growth.
Although it was not clear that Wall Street entirely trusted Trump, whose protectionist policy proposals could hurt major corporations, his victory in the November presidential election marked a turning point. Trump’s surprise win was a “pivot point, no question,” said Bernie McGinn, CEO of McGinn Investment Management, speaking to Barron’s.
At the end of 2016? As of late December, depending on how you measure it, the market was up better than 12 percent.
After a post-election rally, the Dow Jones Industrial Average ended the year up 13.4 percent (its best annual gain since 2013), with some pundits predicting it may surpass a record 20,000. Meanwhile the S&P 500 rose nearly 10 percent. Reuters offers more detail and lists the best and worst performing stocks here.
The winner? Main Street, with its relatively optimistic prediction, was closer to getting it right. But Wall Street — which went into the year using adjectives like “choppy,” “wobbly” and “volatile” to describe expectations — gets credit for capturing the market’s mood swings.
Fuel for oil prices
The year opened with oil prices at a historic low of about $37 a barrel. That was awesome for U.S. drivers (the average cost of a gallon of regular gas on Jan. 4, 2016, was $1.99) but made a tough market for the industry, which was drowning in a global oversupply.
The predictions offered by our amateur and our experts at the beginning of 2016 diverged wildly. The amateur saw the oil price heading toward $29 a barrel, while the U.S. Energy Information Administration projected oil prices would average about $51 per barrel in 2016.
What really happened? The price dipped below $27 a barrel in February, but that was hardly the end of the story.
As Oilprice.com explains:
[C]rude oil sank to depths unseen since 2003, but recovered nicely to above $52 per barrel by December. We saw OPEC hammer out a deal to cut production, another first in eight years, and non-OPEC nations like Russia also pitched in with their contribution to a production cut.
In other words, major oil producers — Saudi Arabia, Iran and Iraq — agreed to work together to end the glut, a move echoed by Russia, which drove the price on a barrel of Brent Crude back up.
The winner: The experts clearly trumped our amateur on this one, who perhaps could be forgiven for believing the free market would prevail.
After enduring the housing slump of the Great Recession, both our amateur and our expert predicted continued increases in housing prices. Our man-on-the-street said: “Hopefully they’ll go up like 8 percent.”
Housing analysts were more cautious. Frank Nothaft, chief economist for CoreLogic, which publishes data on housing and financial markets, predicted an increase of 4 or 5 percent in housing prices, modest economic growth of 2 or 3 percent in 2016, and increases in mortgage interest rates to about 4.5 percent for a 30-year fixed-rate home loan by the end of the year.
What really happened? The expert prediction was more accurate, if you look at the market broadly. According to key indices, U.S. home prices had climbed some 5.4 percent over the year as of October, according to the S&P Case-Shiller CoreLogic National Home Price NSA Index released Dec. 27.
“Home prices and the economy are enjoying robust numbers,” said David M. Blitzer, of S&P Dow Jones Indices. “However, mortgage interest rates were raised in November and are expected to rise further as home prices continue to outpace gains in wages and personal income… ” He sounded a note of caution: “[H]ome prices cannot rise faster than income and inflation indefinitely.”
Our amateur may have been suffering from wishful thinking in his prediction of 8 percent growth in housing prices. But not if he owns a home in Seattle, Portland or Denver — three cities where housing prices are climbing relentlessly higher. According to the recently released index, as of October 2016, Seattle home prices were up 10.7 percent year-over-year, while Portland housing was up about 10.3 percent and Denver prices were 8.3 percent higher.
The victor: In this case, the experts.
Stay tuned: This week we start it all again, with predictions on prices, stocks, gas and more.
How did your predictions measure up in 2016? Share with us in comments below or on our Facebook page.