As we move to the end of the quarter, and complete the first six months of the year, we were met with numerous surprises thus far this year in equities, bonds, gold, bitcoin and in other asset classes:
* A sharp fall (in the face of eroding global economic growth) and then an equally sharp rally in stock prices (also in the face of deteriorating growth).
* Stock market valuations expanded and many Indices hit all-time highs despite sluggish profit and economic growth.
* Performance of the major indices during the month of June will likely be the best in many decades - who would have thunk?
* A funny named IPO became one for the ages - Beyond Meat was Beyond Great.
* A shocking drop in global bond yields. The yield on the 10 year U.S. note fell to 2.00%. ("Group Stink" was odorous as there was not one major strategist that expected lower rates at the start of this year).
* A conspicuous advance in the price of gold and bitcoin - again, after equally large price declines.
* The Fed paused and did not raise interest rates as the consensus confidently predicted (though I was not in that camp of opinion).
Not surprisingly, the political arena in the U.S. grew more partisan and little was accomplished. Also surprising to some was the continued strength of President Trump's support. According to most polls the incumbent is currently the early favorite to win the presidency in next year's election.
Early next week I will review some of my 15 Surprises for 2019 - there were some very accurate ones and others that were wrong footed - but, in the main, I did fairly well.
Whither The Balance of the Year?
We all would love to have a crystal ball in predicting the course of the last half of this year - but mine, to be honest, is fairly cloudy.
The only certainty I do have is that there will be more uncertainties and numerous more surprises:
* It's likely a good bet that higher (perhaps much higher) volatility will be a cornerstone of the next six months. The VIX, currently at comfortably low levels, may move to and establish a new and elevated trading range.
* I expect domestic and non U.S. economic growth (as well as corporate profits) to miss relative to expectations. That miss may be much larger than I fear.
* The current earnings recession may deepen in the third quarter. S&P earnings for 2019 may fall to below consensus to $160/share.
* The expansion in stock valuations could come to a halt and the price earnings multiple of the S&P Index may contract - perhaps, measurably.
* Stocks, which have decoupled from the real economy, could suffer a small double digit decline during the balance of 2019 - as we return to "reality."
* I anticipate not only additional cuts by the Fed but an announcement of another bout of QE to be implemented in early 2020. Despite further economic headwinds/weakness and further Fed rate cuts (and the announcement of QE4) the yield on both the 10 year U.S. note and long bond could move higher - something the consensus no longer expects.
* Reflecting a lower stock market and rising economic concerns, I expect the early 2020 presidential polls to tilt away from Trump and for the Administration's approval rating to fall - raising further market concerns (higher taxes for the wealthy and for corporations, more regulation, etc.). If I am correct and there is evidence that Trump's base weakens, another big surprise could be that Vice President Pence may be replaced on the 2020 Republican ticket.
* Another surprise (remember my 2019 Surprise that this year will be the year of women?) could be the emergence of Democrats Senator Warren and Harris as the leading contenders for the Democratic Presidential nomination. (they were the likely "winners" of the first two Dem debates this week.).
Politically, it is a reasonable bet that - as we move closer to the November election later next year - the partisan atmosphere in Washington, D.C. will deteriorate further. Moreover, there may be economic and stock market consequences of hastily crafted and/or misguided policy (especially of a trade kind) as well as out of control fiscal spending.
The last half of the year, like the first half of 2019, may be another period in which consensus falls flat.
Look for the unexpected.
(This commentary originally appeared on Real Money Pro on June 28. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)