Monday , 17 June 2024

Predicting What the Stock Market Will Do Is Impossible – Here’s More Proof

It’s a mistake to think that a lengthy duration is a sure-fire sign that stocks will soon fall. Indeed, a great deal of research indicates that predicting what the stock market will do in the next 12 months is tantamount to predicting coin flips.

The above comments, and those below, have been edited for the sake of clarity and brevity to provide a fast and easy read and have been excerpted from an article* from originally entitled Past stock-market performance tells you nothing about future results — literally nothing ‏ and which can be read in its unabridged format HERE.

Research by Bank of America Merrill Lynch’s Savita Subramanian “finds no relationship between historical five-year returns and subsequent 12-month returns” as illustrated in the chart below:

If higher five-year returns meant lower returns in the sixth year, then we would see a line of dots going from the top left to the bottom right of the chart. The chart above  appears to be just a random scatter of dots.

Subramanian’s research only adds to the pile of work that shows it is incredibly difficult to predict what will happen in the stock market in the next 12 months. Earlier this year,

  • Citi’s Tobias Levkovich showed how Robert Shiller’s CAPE was terrible at predicting 12-month returns, and
  • BMO’s Brian Belski showed how the forward P/E ratio was no better.


Past stock-market performance tells you nothing about future results — literally nothing.


Related Articles from the munKNEE Vault:

1. Shiller’s CAPE Is Crappy At Predicting 12-month Returns – Here’s Proof

Robert Shiller’s revered stock market valuation ratio, the so-called CAPE, is crappy at predicting 12-month returns. Here’s proof.

2. A Stocks Current P/E Is A Poor Indicator Of Future Performance

Just because stocks are expensive doesn’t mean investors should immediately cash out and prepare for imminent price declines. Why? Because elevated P/E levels are not that reliable in predicting potential market performance. Here’s the proof.

3. Hang In There! Panic Selling Is A Failing Strategy – Here’s Proof

Successful investors outperform by being patient and riding out the volatility. Losers panic and sell at what might appear to be the beginning of downturns. Losers make the mistake of thinking they can predict what will happen next and unsuccessfully time the market. Here’s proof that Panic Selling Is A Failing Strategy.

4. Trying to Time the Market Is a Fool’s Errand & a Money Loser – Here’s Proof

Pullbacks happen, and usually the market recovers, so trying to time the market is probably a fool’s errand – and a money loser.