In September, this year looked like it was going to be one of the great years for the Ten Surprises. Oil was at $75 (West Texas Intermediate) and the S&P 500 was at 2,940. The Surprises had oil at $80 and the S&P at 3,000. The Ten Surprises are judged on whether they work out at some point during the year, not where they are at year-end. It looked very likely that oil and the S&P would hit their Surprise targets by the end of year.

Then October happened and both oil and S&P collapsed. The generally favorable conditions for financial markets were suddenly in question. Investors were worried that a trade war was developing between the United States and China. They became concerned that the liquidity, which had been the life blood of the bull market since 2008, was being withdrawn as the Federal Reserve raised interest rates and reduced the size of its balance sheet (by not replacing the bonds that were maturing at a rate of $50 billion a month). Slower growth around the world also worried investors. China, which had been growing at 7% or more, seemed to be struggling to grow at 6%. The market mood shifted from complacent to cautious, and investors sought a catalyst to reawaken the bull. Some wondered if a bear market was beginning; after all, the current bull market began in March 2008 and was more than ten years old.

Assessing the 2018 Surprises against this background, they turned out to be a little better than average. The Surprises are defined as events which an institutional investor would assign a one out of three chance of happening, but which I believe are probable, with a better than 50% likelihood of taking place. Usually I get five or six right, but I compile the Surprises to stretch my (and hopefully your) thinking about the year ahead, and not to get a high score.

In the first Surprise, I said that China would play a role in helping the United States negotiate a denuclearization plan with North Korea. This one did take place, with China withdrawing substantial food and fuel shipments to the country in adherence to prescribed sanctions. China’s involvement was extremely helpful in bringing to the conference table a Kim Jong Unwilling to make some kind of deal. A year ago, we were all worried about a possible military conflict with North Korea. Nobody is talking about that now. There is not a lot of evidence that the country’s nuclear development effort has been dismantled, but the hostile rhetoric has ceased and the prospect of missiles being hurled at South Korea, Japan or the United States seems to have diminished.

For the second Surprise, I thought that populism, tribalism and anarchy would spread around the world and there is certainly plenty of evidence of that. The “yellow vests” riots in France are a good example of anarchy, as protesters with no apparent leaders complain about higher taxes on energy, inequality and the failure of government to improve the lives of the French people. The Brexit impasse, Angela Merkel’s reduced power in Germany and the rise of the Five Star movement in Italy are good examples of the increasing influence of populism. Tribalism is the key cause of Middle East strife. The world has clearly become a more unstable place over the past year.