For the last few years, most market predictors have their crystal balls broken. It is due to the excessive supply of money that leads to a non-correlation of the economy and the stock market. It cannot last forever. It will correlate again when the money supply is reduced.
2015 will be a tough year to predict. I will predict a gain of 7% if the market does not plunge. As usual, there will be two camps in opposite directions.
· The interest rate will start rising. However, 2015 is the year before election and no politicians will risk their chances by raising the interest rate.
· The market is slightly over-priced.
SPY’s P/E is about 18 vs. the normal 15.
· The economy is improving slowly.
· Energy cost is reducing (bad for the energy sector).
· Most corporations have good profits especially in the first and second quarter.
· Margin debt is in the record high. The market would usually plunge the next year after that year.
· Interest rate will climb after the mid year of 2015.
· The national debts and obligations are high as a percentage of the GDP. If we legalize 4 million illegals, how many will give up their work and collect welfare?
What should we do
I would watch how the above will materialize. The weather man can predict the weather in the next few days better than the next month.
When the market is down, we need to know whether it is a correction or the start of a market plunge. For a correction, you want to buy stocks as in Oct. 15, 2014. For market plunges you want to sell. For me, I prefer to ignore corrections these two years as it could be the start of a market plunge.
Most predictions from analysts and fund managers are rosier than they actually are. Accept their ideas that make sense. Written 12/1/2014.