The stock market, after a solid 2017, set an historical high in late January, then reversed direction and turned negative. Stocks did recover somewhat and were essentially unchanged since year-end. For the six-month period, the Dow Jones Industrial Average was down 1.8% and the Standard and Poor’s 500 Stock Index increased 1.7%.
It is crystal ball time for predicting the stock market. We have often reminded our clients that while all Wall Street strategists are asked for their predictions – outguessing the outcome is almost always impossible, i.e. 2017! The most bullish forecast a year ago – was for a 15% increase; the least optimistic was 3%. The average forecast was a 7.5% increase.
A year ago, our group had predicted (and hoped!) for a 6% return for the stock market in 2017. Even the most optimistic of our investment strategist sources had predicted a 15% return. Neither was correct (happily)! It was a year that surprised almost everyone. The Standard and Poor’s 500 Stock Index, the broadest measure of the stock market, gained 19.4% in 2017 – its strongest gain since 2013.
U.S. Stocks continued to rise over the past three months to achieve record highs. Solid earnings and economic data have helped support the major stock market indexes despite tension with North Korea and disruptive hurricanes. The Standard and Poor’s 500 Stock Index rose 4.0% for the quarter. It has risen 12.5% since year-end. The Dow Jones Industrial Average increased 4.9% for the quarter and 13.4% for nine months.
The Dow Jones Industrial Average and Standard and Poor’s 500 each rose about 8% since year end, the best start to a year since 2013. Stock prices were boosted by solid corporate earnings and investors’ expectations for improving economic growth.
Twelve months ago, we suggested stocks would increase 8%. That was off the mark, but less so than other widely held predictions of double digit returns.
We forecast that 2016 will be a better year for the US stock market. We see stocks rising moderately between 5% and 6%. We agree with certain strategists that the key driver of stocks will be moderate earnings growth of 6% to 8% and a somewhat tepid 2 1/2% GDP growth. None of our Wall Street sources expect a recession.
2015 was a challenging year for U.S. stocks. The stock market took investors on a wild ride, but in the end it essentially ended flat. In between, stocks hit a record high then took their steepest decline in four years. The Dow Jones Industrial Average and the Standard and Poor’s 500 Stock Index (the broadest of the indices) declined for the first time in six years, -2.2% and -0.7%, respectively.
After a flat first quarter, stocks fluctuated back and forth during the past three months until June 29th when U.S. stocks dropped about 2% due to a worsening in Greece’s debt crisis. The Dow Jones Industrial Average and the more broadly based Standard and Poor’s 500 stock index edged down 1.1% and up just 0.2%, respectively, since year-end.
The new year means it is time to take a stand on the stock market’s direction in 2015. Many investors felt, after stock indexes generally increased 25% to 30% in 2013, that stocks would surely decline in 2014. To the contrary, history, as we had indicated, suggested that good years tend to follow great years; the S&P 500 rose an average of 10% in each of the years following gains of 20% or more since World War II. We had predicted 8% to 10% returns a year ago.
Now, history shows that the second year following great years is not bad either. They advanced 88% of the time. But that 88% does not mean that the S&P 500 declined 12% of the time. Stocks were flat in 1947 and 2011.