Probable Market Gain: 2% to 3% (Average since 1984 4.9%)
Probability of Breaking Even: 60% to 65% (Average since 1984 73%)
(Click on graph to enlarge)
The U.S. stock market partied hearty during the second half of 2013, and it may be time for sobering up. My models had made a strong positive forecast back in July for an 8% gain through the end of 2013 -- but the market rose a joyous 17%! Many of the fears holding back the market simply evaporated:
Congress approved a budget and appears likely to avoid a debt default crisis.
The Federal Reserve 'promised' a very slow tapering of financial stimulus.
The economy continued to gradually improve.
Sadly, the stock market can't keep growing at a 38% annual rate forever, or at least that is what my econometric models say. The stock market, of course, will do whatever it will, and the rush of the Bulls could keep running for months. I have a gut feeling that the party will stop pretty soon, quite possibly in bone-chilling January or dreary February. I have a hunch that I wasn't the only nervous investor who resisted selling in December in order to avoid paying 2013 income taxes on my 2013 gains.
Here is the short-term market indicator that I plan to watch: a plot at StockCharts.com of the relative performance of the S&P 500 versus a long-term bond fund:
http://stockcharts.com/h-sc/ui?s=IVV:IEF&p=W&b=5&g=0&id=p13375668178
When stocks start performing worse than bonds your worries are being confirmed.
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