U.S. markets essentially made no gains in 2015. The major indexes are more or less flat for the year to date. The Nasdaq-100 Index has done best, gaining about 8 percent, driven by a handful of big winners such as Amazon, which is up 116 percent for the year. Yet the flat returns belie a big increase in volatility, including a sell-off of almost 20 percent at the end of the summer that investors had made up by late fall.
There have been two ways of predicting what flat years mean for future returns. Some bearish traders assert that the flattening of indexes is a sign that the bull market, which began almost seven years ago, in March 2009, has grown old and tired. In this view, flattening indicates that markets are setting up for a major correction or worse.
The opposing argument has been that markets have had a great run, up over 200 percent, after the 57 percent fall during the financial crisis. These big gains need to be digested, and a sideways year is a “pause that refreshes.” Allowing earnings to catch up with prices also allows markets to become more attractively priced.
Continues here: You Can’t Predict Future Markets After Flat Years