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2024 started with both optimism and caution.

The cautious argument was that the U.S. equity market had just delivered huge gains (the S&P 500 was up 26%, the Nasdaq 100 was up 54%) and valuations were getting extended. Inflation had come down, but was still elevated to the point where the Fed couldn’t really normalize rates to a significant degree. Consumer debt levels and delinquency/default rates on credit were rising.

The optimistic argument was a little of the same. Inflation was normalizing and would result in an improved economic environment. The Fed was ready to cut rates and that’s generally a good thing for equity prices. The economy was resilient and that meant recession wasn’t an immediate concern.

I was more in the former camp (as you’ll see in some of the predictions below). I thought tighter credit conditions would slow the economy and that could hurt both consumers and the labor market. And even if it didn’t, the market sure seemed due for a breather that could see a rotation out of big mega-caps and the magnificent 7 stocks.

It turns out that the optimistic case was the winner. The economy remained resilient. Consumers kept spending. The labor market held tight. While there were some global issues that emerged, the U.S. economy was the envy of the world and that was reflected in risk asset returns.

I made a total of 11 predictions at the beginning of the year ranging from a broad macro view to ETF specific. 12 months later, some look very good and some look very bad!

Let’s take a look back.

A Spot Bitcoin ETF Gets Approved & All Filings Get Approved At Once

Verdict: True

What I said at the time: "They're saying there's a 90% chance we'll get a bitcoin ETF approval, probably sometime in January when the SEC needs to make a decision on the first filing deadline. The only real question, in my opinion, is whether they approve one first and then approve the others later or if they just issue a blanket approval all at once and just let the free market reign. It seems more likely that it's the latter."

Today: In reality, there wasn’t much question that this one was going to happen. It was just a question of how it was going to happen. It turned out that January 11th was spot bitcoin ETF launch day and all of the filings, including those from BlackRock, Fidelity, ARK, Bitwise and others, got approved at once.

It’s amazing how quickly these ETFs have blown up. The iShares Bitcoin ETF (IBIT) has surpassed $50 billion in assets. The Fidelity Wise Origin Bitcoin ETF (FBTC) and the Grayscale Bitcoin ETF (GBTC) are both around $20 billion. Even the smaller ones are doing relatively well.

A Spot Ethereum ETF Gets Approved

Verdict: True

What I said at the time: “This one’s a little less clear, but I have to believe that if the SEC approves a spot bitcoin ETF, a spot ethereum ETF can’t be far behind. The path of ETF launches here leads me to believe that a spot ether ETF will probably debut well after a spot bitcoin ETF does. Still, if a spot bitcoin ETF gets approved, a spot ether ETF is probably inevitable. I think it definitely happens in 2024.”

Today: This was a little less clear. Ethereum ETFs were barely on the radar at the start of the year given all the attention focused on the bitcoin ETFs. But it seemed logical that if they approved one, they’d eventually approve the other.

They did in July and, just like with the bitcoin ETFs, several got approved all at once. They haven’t been met with the same enthusiasm (although there is more than $10 billion across these ETFs), but flows have been improving lately and 2025 could end up being bigger.

The Best Performing Sector Will Be Healthcare

Verdict: False

What I said at the time: “I think conditions will change significantly in 2024 along with equity market leadership. Despite investors getting excited today about Fed rate cuts, it’s important that those usually occur in the lead-up to recessionary conditions. This time around will likely be at least a little different because the Fed will be lowering because inflation is coming back under control as opposed to specific economic weakening. I suspect that deteriorating conditions will give new life to defensive issues, maybe not quickly in 2024, but eventually. Healthcare has been a sector that has consistently done well in economic slowdowns and I believe it will again here.”

Today: What a bomb this turned out to be! Healthcare is actually the worst performing sector year-to-date with a gain of just 7%.

My original investment case was based on the idea that the economy would slow and defensive sectors would rise to the top. Obviously, that didn’t happen and defensive sectors, except for utilities, have been severe laggards this year.

The Worst Performing Sector Will Be Consumer Discretionary

Verdict: False

What I said at the time: “Part of this would be a natural follow-up to this sector’s 40% gain in 2023, but a bigger part is due to my belief that the consumer is in worse shape than the economic figures are letting on. If consumers are just buying more and more things with money that they don’t have, that’s simply unsustainable and is going to lead to a wide array of negative consequences down the road. If we trend towards recession in 2024, I think this could be one of the hardest sectors to fall.”

Today: Another bomb. This was pretty much the reverse case of the “healthcare as a winner” selection. Consumer discretionary stocks are up 31% year-to-date and, while that only tops the S&P 500 by about 2%, that makes it the 3rd best performer of the 11 S&P sectors.

The thing is that I still think the economic case here is valid. Even though retail sales and consumer spending figures have been solid, there’s a lot of weakness under the surface. Debt delinquency rates are at 12-year highs and the K-shaped economic expansion means that roughly half of consumers are struggling to simply make ends meet. The big retailers, except for Walmart, has steadily issued warnings of weaker consumer behavior. I still think this is a high risk for 2025.

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Vanguard Passes BlackRock As The Largest ETF Issuer

Verdict: False

What I said at the time: “As it stands currently, Vanguard is about $200 billion behind ($2.5 trillion in AUM for BlackRock vs. $2.3 trillion for Vanguard). To provide some perspective, Vanguard has taken in around $50 billion more in net new money than BlackRock so far for 2023. Making up $200 billion in assets in a single calendar year is unlikely, but not impossible. Vanguard has been steadily gaining market share for years and it’s not out of the question that its reputation and roster of ultra-cheap ETFs finally make a run at the crown.”

Today: The $200 billion AUM deficit is almost exactly the same as it was a year ago. Vanguard won the net inflow battle between the two - $270 billion to $253 billion - but BlackRock still leads on total AUM.

The launch of IBIT was a big reason why BlackRock was able to maintain its cushion. It took in $35 billion in flows this year and currently has more than $50 billion in assets. Vanguard, of course, didn’t launch a bitcoin ETF. I think the long-term momentum is still in Vanguard’s favor and they’ll pass BlackRock eventually.

JEPI Experiences Net Outflows

Verdict: False

What I said at the time: “The JPMorgan Equity Premium Income ETF (JEPI) became a monster in 2022. 2023 has been similarly successful, but it looks like the momentum is running out. Yes, the fund has grown to more than $30 billion now, but net inflows have essentially turned flat. I think this momentum will continue into 2024. Covered call strategies tend to underperform the broader markets over longer periods of time because share price upside is capped.”

Today: JEPI has taken in about $4.5 billion in net new money this year. It has had positive flows in 11 of the 12 months this year and in July, its one negative month, only saw an outflow of a scant $21 million. It’s not to the level of the $13 billion inflows of 2022 and 2023, but it shows the momentum hasn’t slowed yet. JEPI’s yield has shrunk to 8%, but the launch of single stock ETFs and 0DTE ETFs has brought a lot of momentum back to the covered call ETF space.

JEPI and its sister fund, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) now manage a combined $57 billion and have taken in nearly $15 billion combined this year. These two are simply the industry heavyweights within the derivative income space.

The Fed Makes 3 Interest Rate Cuts

Verdict: True

What I said at the time: “This doesn’t feel like much of a bold prediction given that the Fed’s December dot plot forecasted three rate cuts in 2024. But this is a significant deviation from the 6-7 rate cuts that the futures market is currently expecting. Given that the core inflation rate is still at 4% year-over-year and the Fed has been notoriously stubborn in shifting its narrative to a more dovish tone, I’m having a lot of trouble imagining that Powell is going to cut rates at virtually every meeting this coming year starting in March.”

Today: Assuming it cuts in December, which is very likely at this point, the Fed will have executed three cuts for a total of 100 basis points. Whether you want to count that as three cuts or four quarter-point moves is up to you.

This wasn’t a popular choice at the time given how the market was pricing in a much more aggressive cutting cycle. But we’ve seen this kind of overdovishness from the markets before. For all his faults, Powell consistently said that policy needed to remain restrictive for longer in order to get inflation under control. He’s mostly followed through on that promise and seems to have struck a good balance between accommodative and restrictive.

Biden Wins A 2nd Term On Big Spending Promises

Verdict: False

What I said at the time: “Politicians love to make big promises in order to secure votes. $1 trillion-plus annual budget deficits are expected to continue at least through the end of this decade regardless of who’s in office. There are already a number of big ticket items on the agenda and, even though the means for paying for some these things is still very much in question, I suspect that Biden will continue to endorse big projects/goals and that will be enough to secure himself a second term.”

Today: Biden got the nomination, but ultimately didn’t make it to the ballot. Let’s face it though. Even if he did, he wasn’t going to win.

But we don’t need to discuss the politics of it here. Politicians have always promised more tax cuts and more subsidies in order to win elections. I was a little surprised though that massive spending plans to lift up struggling households didn’t become a primary campaign talking point. For the most part, Democrats made it about abortion and Republicans made it about immigration. The big spending will likely be with us for the foreseeable future either way, but it didn’t really become a big talking point.

The 10-Year Treasury Yield Finishes The Year At 3%

Verdict: False

What I said at the time: “This is admittedly pretty tough to predict because there are so many variables that go into it. I suspect the path back to a 3% 10-year yield will be a function of two things - a steady easing of monetary policy conditions by the Fed and the onset of the flight to safety trade, possibly in the 2nd half of the year. If the markets get the sense that economic strength has run out and the chances of a recession start growing, investors might start fleeing to Treasuries for safety, not just as a yield play.”

Today: We still have a couple weeks to go, but it looks like the 10-year is going to finish 2024 somewhere around 4.5%. The flight to safety trade never really happened outside of that period in August where the yen rallied and the reverse carry trade started to unwind. It briefly touched 3.6% in September, but started moving higher again from there.

It’s become harder to predict Treasury yields going forward. It might depend on how aggressively Trump wants to pursue tariffs as a part of foreign trade policy. The stiffer they are, the more likely a re-acceleration in inflation becomes. The U.S. has managed to diversify where it imports its goods from over the past several years, so I think inflation might be getting overestimated in the next year, but it’s still very much a possibility. If that occurs, long-term yields probably drift closer to 5% unless something breaks along the way.

Bitcoin Miner & Blockchain ETFs Struggle Mightily

Verdict: False

What I said at the time: “Part of the reason that this group has taken off in 2023 is that ETF investors have been using them as a proxy for bitcoin. But if a spot bitcoin ETF shows up in January and investors can own the real thing through an ETF, is there a need to own bitcoin miners or blockchain stocks as a proxy anymore? We saw somewhat similar behavior a couple decades ago when gold ETFs debuted. Investors turned away from gold miner stocks as a proxy to own the actual metal. I think there’s a chance that prices hold up better this time around, but a big source of demand for these stocks could disappear quickly.”

Today: I should have clarified this by emphasizing the rotation story as opposed to absolute performance. Fintech ETFs, which includes blockchain and bitcoin miner ETFs, saw nearly $1 billion of net outflows in 2024 on a base of around $4-5 billion in assets. The rotation out of these ETFs and into spot bitcoin ETFs was indeed significant and I suspect the desire for more direct crypto exposure was the reason.

But I also underestimated the correlation between bitcoin and fintech ETFs. These funds have ridden the bitcoin rally to become among the best performing groups of 2024 with returns in many cases of more than 50%. Performance and flows will be two very different things. In terms of the latter, I suspect this group will continue to stagnate or see outflows. Investors will continue to favor spot bitcoin or ethereum ETFs for crypto exposure.

Inflation Finishes The Year At 3%

Verdict: True

What I said at the time: “I don’t think inflation (especially on the core side) is coming down as quickly as the markets want to believe it is. If the labor market and wage growth stay at current healthy levels, there’s not really an impetus for inflation to head sustainably back to the 2% level yet. Even then, I think core inflation is a slow-moving train and it could be 2025 before we start getting back to 2% inflation.”

Today: The headline inflation rate is 2.7% and the core inflation rate is 3.3%. If we split them down the middle, we’ll call this a winner.

The general idea behind this prediction was the market was expecting a relatively quick return to the Fed’s 2% target rate and I thought there were several factors that could work against it. Rent and services inflation rates are still between 4-5%, so the inflation problem in the U.S. is far from solved. It’s still pretty sticky today and I think that’s going to be a driving factor behind the Fed’s likely inability to make significant rate cuts in 2025.

Final Thoughts

Out of 11 predictions, 4 could be rated true and 7 rated false.

Picking the winning or losing sector out of 11 in total was always going to be a low probability winner, but those two were way off either way. My overall expectation for an economic slowdown this year never materialized, so it was going to be tough getting a lot of predictions correct based on that alone.

The predictions on inflation and the Fed, however, turned out to be pretty spot on. I believed that inflation wasn’t going to ease as quickly as most people thought and that turned out to be true.

I suppose that means that my crystal ball is really no better than anyone else’s!