With teeth chattering over a devaluation in China, the collapse of the three-year bull run in the dollar, Russia's default, contagion effects in Latin America, the implosion of
Long Term Capital Management
(and the near-collapse of who knows how many others) and the
series of interest-rate cuts (never mind less significant events like the impeachment of
), 1998 was a pretty hard year to get a handle on.
Rough, yes, but with all the trouble, the market still put in a double-digit gain, defying not just most strategists but some of the major indicators.
The most touted indicator, of course, was the one that said a bad year was ahead because some guy from Denver ran it into the end zone in the last two minutes on the last Sunday in January. So much for the
indicator. So much, too, for the theory that how the
Dow Jones Industrial Average
does in January gives a read on the year (it was unchanged that month). So much for the hemline indicator -- hemlines fell, but stocks didn't. So much for the aspirin-count indicator -- even though aspirin sales rose, there was no correlative headache on Wall Street.
This is not to say every indicator got it wrong. "The international financial markets will experience greater volatility in 1998 as a sudden drop in one market will quickly spread to other nations and become self-reinforcing," wrote the good people at
Credit Lyonnais Securities'
Hong Kong office in their annual Feng Shui report last year. "This may be viewed as a golden opportunity for buying by those who have a longer-term investment scope, although investors who are already sitting on a big pile of paper profit should realize those gains before beginning anew. The performance of international financial markets will continue to be led by the U.S. stock and bond market. High-tech stocks -- again, a highly volatile sector -- will remain the favorite."
Despite the authors' recommendation that investors, especially "those large, prudent institutions responsible for running funds on behalf of the bereaved and parentless," not take their report too seriously, Chinese astrology obviously gave far better investment advice than any of the wizards at Long Term Capital Management.
It also proved a better predictor of the year's events than the annual "10 Surprises" list from Byron Wien, the chief investment strategist and
Morgan Stanley Dean Witter
. "Usually more than half of the component elements take place during the year," Wien prefaced this year's report. But for 1998, only one of his predictions came to pass -- at least by our count, where we gave half-credit.
Wien's runes and entrails revealed such eventual nonactualities as a long-bond rate surge to 7%, a Dow swoon to 7000, a sharp slackening of mutual fund inflows and an
announcement that campaign-finance controversies would keep him out of the 2000 race. He received half-credit for calling the
departures (mixed in with some incorrect forecasts) and for spotting Japan's continued woes (while calling for a
drop to 10,000).
This record is more a demonstration of the impossibility of predicting what events will move the market than a condemnation of Wien, who, to his credit, had his hand far more firmly on the tiller than most strategists when it came time to guide investors through the summer's market turmoil.
, who takes his own yearly stab at the prediction game and offers a review of his 1998 performance and a fresh 1999 forecast
elsewhere on the site, fared just about as well as Wien last year. Kansas looked forward to a recovery in Japan, a swift end to the
contretemps and a
retirement, but he also pegged 1998's first-half rally (didn't make Dow 9500, though).
Looking at the calendar last year, one might have picked out Japan's "big bang" financial reform as the market event of the year. It was anything but. And in 1999, there are few red-letter days at any rate. There will be the usual run of
International Monetary Fund
meetings, which may or may not be important depending on what's been happening in the world. In September, there will be elections in Argentina. People will start to get nervous about the millennium bug in the waning months of the year, which may prompt a run on canned goods and
stock. It's doubtful that any of these things are going to be what people on Wall Street remember most about 1999.
"Whenever you do your outlook for the year and tick off what's going to happen," says Josh Feinman, global markets economist at
, "you know you're going to miss the most important one."