What Should You Expect After Flat Years in US Markets ?

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

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  1. Iamthe50percent commented on Dec 8

    So, either the market will go down or it will go up. And maybe, it will continue sideways for a while before going either up or down.

  2. marketmap commented on Dec 8

    A problem arises in extrapolating outcomes and asset allocation decisions by the use of a simple, single year’s return ( discrete variable ) which makes it difficult to reach conclusive decision heuristic. It’s the calculation of a heuristic set involving consecutive strings of years’ returns ( with returns not being keyed around absolute “0” baseline ) that can help quantify overvaluation or undervaluation and hence, with the addition of other statistically significant variables, moves towards a comprehensive asset allocation model that provides signaling in chonologically ordered fashion. This promotes confidence in allocation decisions.

    Logic for consecutive years of overperformance string ( non subjective price based variable #1 ) was satisfied at year end 2013 https://stockmarketmap.wordpress.com/2014/01/22/market-map-model-allocates-to-cash/ with 2014 being a further year of overperformance / overvaluation. In early 2015, the risk profile variable identified 2015 as a “high ” risk year https://stockmarketmap.wordpress.com/2015/01/19/market-map-allocates-to-cash/. Over the last 11 months, the market return / action has fallen into the returns distribution typical of a “high risk” profile year .
    As to knowing how to position assets for 2016, we have to wait for confirmation from either variable #5 at year end, or variable #2 at the end of Jan, 2016. https://stockmarketmap.wordpress.com/2015/11/14/market-map-model-tactical-asset-allocation-using-low-expense-index-etfs-2015/

  3. rd commented on Dec 8

    Hulbert says that there is a 2 in 3 chance the market will rise next year. That is the same probability of every year since 1896 and appears to hold whether or not the market rose or fell the year before. No discussion on whether or not the probability is the same for a CAPE well north of 20 or market value above GDP, but 1999 taught us that nothing can be counted out even with a relatively high valuation.


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