A look back at 2013 market predictions CBS News

Post on: 26 Июль, 2015 No Comment

A look back at 2013 market predictions CBS News

Larry Swedroe recently wrote a piece on eight can’t miss 2013 market predictions, and how they are panning out. According to Swedroe, only one of the eight was accurate. It so happens that on Christmas Day last year, I came out with three market predictions for 2013. Though I noted that I am loath to predict the future, I assigned probabilities to my predictions. Let’s see how they are doing so far.

Prediction #1: Stocks will rise — 70 percent probability.

According to the folks at Wilshire Associates, stocks have historically risen in 76 percent of the years, and declined in 24 percent of the years. I adjusted my analysis to include the fact that we have lower than historical inflation and estimated the probability at 70 percent. Through October 11, 2013, the Wilshire 5000 total return is up 23.17 percent.

Prediction #2: Bonds will return less than their historical average — 90 percent probability.

Many thought I had thrown my hat into the interest rate prediction ring, where economists have directionally predicted interest rates correctly under 50 percent of the time — less than a coin flip. In reality, I merely applied some math and probabilities. Over the previous five years, the Barclay’s Aggregate Bond Index had returned 5.97 percent annually. For that to occur in 2013, the yield would have had to decline from 1.69 percent to 0.84 percent. Treasury yields would have had to be even lower. Through October, 11, 2013, this bond index has returned a negative 1.93 percent.

Prediction #3: Investors will be late to the game — 99.9% probability.

A look back at 2013 market predictions CBS News

I specifically noted If we have rising interest rates next year, I predict the 2012 investor cash flows into bonds will reverse next year. Interest rates did tick up a bit and guess what? According to the Investment Company Institute, for the year through September 25, 2013, $26 billion flowed out of bond funds while $99 billion flowed into stock funds. I wasn’t exactly sticking my neck out on this prediction as money chases whatever is hot.

Analysis

The year isn’t over yet. Though all three predictions are correct as of the date of this writing, they could still end up being wrong. What separates these predictions from the eight can’t miss predictions Larry Swedroe wrote about was that they weren’t based on knowing the future. They were based on data and probabilities. In fact, I calculated there was a 63 percent probability all three predictions would be correct.

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