“It’s difficult to make predictions, especially about the future.” Who said it? Niels Bohr? Yogi Berra? Mark Twain? The answer is at the end of this quarterly commentary.
At the end of the last quarter, who would have predicted an S&P 500 Index rising above 5400 (middle of June) and driven by three $3-trillion market-cap stocks which make up 20% of the entire $45 trillion capitalization of this globally followed index of 500 US companies? This happens as the US dollar continues to be globally strong and while the outcome of the coming US elections is difficult if not impossible to predict today. Not only is the contest between Biden and Trump bewildering, but the US Senate and House are so very close as to make the outlook for policies next year very difficult to determine.
We know that a debt ceiling is staring us in face at the beginning of next year. We know that the Senate is very closely contested and may swing to the Republican side if the pundits and odds makers are now leaning correctly. And likewise, we know that the House may swing to the Democratic side. We know that the tax structure initiated by Trump is expiring and the gap between high and low outcomes will score about $4 trillion when the Congressional Budget Office is done with its estimation at the end of this year. But we don’t know how or which way it will shake out.
Looming domestic economic changes leading to uncertainty about forecasts is the honest admission of this writer. Presidential debates and domestic US events could change the outlook. As this is written, there is no clear path to a higher-confidence forecast.
And the global issues loom as well. France’s snap election came in response to the European Parliament election, which surprised the world by tilting to the harder right wing. Meanwhile, the wars in the world are continuing and expanding in the Middle East and in Europe while Putin threatens the Western alliance. Note that there was recently a Russian nuclear submarine in the Caribbean making a port call in Havana. I have written more about international issues this quarter than in a long time. I expect that will continue.
And the legal headlines are beyond imagination. Trump is a convicted felon in NY in addition to having two civil awards against him that required multi-hundred-million-dollar postings of bonds while appeals take place. The rest of Trump’s legal entanglements in various jurisdictions plod slowly through the legal labyrinth. Meanwhile, others, like Senator Menendez of NJ, face different versions of this legal Rubicon. And the list could continue with more and more prominent names, but we will stop here. Note that Hunter Biden is not a government official, all the notoriety about his conviction notwithstanding.
Somehow, markets seem to be ignoring the various politicians’ legal risks and ignoring the global geopolitical risks. An observer of this landscape might conclude that AI will cure everything. Maybe so, but I doubt it.
Uncertainty is defined as the condition when one cannot assess reasonable probabilities to outcomes. We have uncertainty staring us in the face. But that doesn’t mean the risks aren’t looming.
We close this end of the second quarter with a personal admission of uncertainty unlike anything we thought would be at hand in this time of the summer solstice in 2024. Even the Federal Reserve is offering a mixed landscape, according to the “dot plots” recently released.
I guess this quote is our best guidance. “It’s difficult to make predictions, especially about the future.”
The first appearance of this quip in English was located by QI (Quote Investigator) as appearing in a 1956 academic publication called the “Journal of the Royal Statistical Society. Series A”. The original source is believed to be Danish.
Here’s the link for the history of this epigram: https://quoteinvestigator.com/2013/10/20/no-predict.
David R. Kotok
Co-Founder and Chief Investment Officer
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