December 21st, 2011

2012 Stock Market Predictions

‘Tis the season and predictions for 2012 abound.  Like the market, they are a confusing and contradictory bunch.  Here are a few that fell into my inbox just this morning:

  • According to the Wall Street professionals assembled by Barron’s, “all expect the market to rise about 11.5% next year, which is about what they expected to happen last year and in 2010.”  And in the next breadth, Barron’s seemed to undermine the prediction by inserting the following quizzical chart:What the chart says to me is that: 1) the divergence in Wall Street’s views are as wide this year as they had been the prior two years and 2) Wall Street is batting .500 by the average prediction being dead on correct once and being totally off the next year.  So how much credence would you give to Wall Street’s prediction for 2012.
  • USAToday also assembled their own, different Wall Street Crew for their views of what to expect in 2012.  “….a quick survey of New Year‘s prognostications from investment strategists suggests stocks might deliver the double-digit gains that they have put up, on average, over the long term. A snapshot of 2012 year-end-price targets from five firms shows an average gain of 10.5% for stocks.”
  • If you want a fundamental-based set of explanations for why we’ve been experiencing such an exasperating market you can turn to IBT (International Business Times) who have assembled a Chinese menu sort of prediction for 2012.  Pick any predictions for column A (Bullish) an column B (Bearish) and come up with your own number:

I, for one, am not going to try to pick what I think might be the most probable outcome, I’m not smart enough for that. But I am going to stick with the long-term “reversion to the mean” projection that has been true since I first wrote about it here on December 9 2009 which you should read to understand how it was derived.  In short, the assumption is that we are at the end of a secular bear market similar to the one in the 1970’s and the path out might be similar to the last one.

It may be a queer anomaly but the market has been tracking fairly similar to the path laid out back in the 1970’s.  If it continues the path then the market might touch between 950-1000 sometime in the first half of 2012 and then begin and succeed in another attempt to cross into new all-time high territory in 2013: Would I be disappointed if this prediction failed?  Not at all; I’d be ecstatic.

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