Stocks are on track to end this year almost flat, rising by 0.2 percent since January 1. But that doesn’t necessarily mean the rally is over.
“There’s a 66.1 percent chance that the U.S. stock market will rise in 2016,”
writes investment newsletter publisher Mark Hulbert on MarketWatch.com. “If you’re like most investors, you’re encouraged by those odds.”
He says that a flat year, or even a down year, is not a reliable indicator of what’s to come.
“The odds of the stock market rising next year would be the same even if we currently were in a bear market,” he says. “That’s because the market’s odds of rising in a given year have nothing to do with how it does in prior years. Historically, those odds have been very close to two out of three.”
Gambler’s Fallacy
Hulbert says using past results to predict the future can be equivalent to the “gambler’s fallacy.” That’s when a person is fooled into thinking that after a coin flip comes up heads six times in a row the odds improve of getting tails.
But a coin has no memory of its past flips – there’s always a 50-50 chance of heads or tails.
“Though you initially may be disappointed that the stock market’s fate next year has nothing to do with this year, I would argue that it’s actually good news,” he says, citing a researcher who says a well functioning market is anticipating future returns.
“This doesn’t mean the stock market can’t perform well in 2016,” Hulbert says. “The point is that, if it does so, it will have nothing to do with how it’s done this year.”
Goldman's Outlook
Meanwhile, Goldman Sachs Group Inc.’s top stock strategist is telling investors to brace themselves for meager gains in 2016.
“Flat is the new up,”
says David Kostin, the New York-based bank’s chief U.S. equity strategist, to USAToday.
His 2016 U.S. stock outlook is identical to his 2015 call, the newspaper reports.
“At the start of 2015, the Goldman Sachs strategist predicted the Standard & Poor's 500 stock index would finish the year at 2100 (or 2 percent above the large-company stock index's 2014 close of 2059). His call was spot-on,” USAToday says.
“The S&P 500 closed Friday at 2092, up 1.6 percent for the year. For 2016, Kostin is again calling for the S&P 500 to end the year at 2100 (which equates to a gain of less than 1% from Friday's close).”
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