Most people including traders are not very good at making predictions, even just a year ahead.
But Art Cashin has had a reasonably strong track record.
(Read Cashin’s 2018 outlook here.)
On December 14, 2016, I sat down with Art at Bobby Van’s for our annual look-ahead. The discussion was dominated by the election of Donald Trump and its impact on the market.
The big issue at the time was the timing of tax cuts, with most predicting it would come early in the year. But Art was not sold, and his prediction was spot on:
“If we shift to the Supreme Court [nominee], we may not see corporate tax relief until nearly the end of 2017.”
He also correctly predicted that the market would pause if it sensed that tax cuts were not imminent, which happened several times during the year:
“If he gets a corporate tax cut it will enhance the earnings for the S&P 500, and so therefore that will mean a repricing of the market…in all my years here I know the stock market is run on anticipation but when they look at what the actual timing is, they may pull back.”
On the Fed and inflation, Art correctly predicted that the Fed would become preoccupied with deflation, not inflation:
“I will tell you the one thing that nobody in the market is looking for, that fears of deflation begin to reassert themselves by the end of the first quarter, Everyone is looking for inflationary pressure from the fiscal stimulus, but you may find the countervailing pressure, and you may get it from the small increases in interest rates we have been seeing…virtually no one is looking for that.”
Art was also concerned about the wave of populism that might sweep through Europe after Trump’s election:
“The populist revolt is a global event…and it may continue in Europe. It wouldn’t take much to get the Italian government destabilized…Greece is not far from returning to crisis again. You can say, I’ve seen this movie before and nobody dies, but it’s a slightly different movie this time.”
It didn’t quite turn out that way: while populist parties did gain in European parliaments, populists were turned back in the top leadership positions throughout Europe.
Bottom line: three out of four isn’t bad.