Stock market predictions

Stock Market Predictions

Stock market predictions – like when a market might pull back or if it’s a good time to buy stocks – sound like a great idea. Who doesn’t want to know what’s in store for their money or if there will be a stock market crash in 2022? But these forecasts, even from experts, can vary widely. How are both short- and long-term stock market forecasts made, where does the information come from, and what information should investors look at?

Leading Economic Indicators

Leading economic indicators can tell you where an economy is headed and provide information so that investors can make stock predictions. A leading indicator shows economic improvement or decline before the economy shows it.

These indicators include:
• Stock prices
• Average Earnings
• Consumer Spending
• Unemployment Claims
• Building Permits
• Product Inventory

Leading economic indicators tell investors whether an economy is expanding or contracting. For example, if unemployment claims are down and earnings are up, then it’s likely the economy is expanding.

Leading economic indicators also influence the actions of central banks. These banks may implement easing or lower interest rates if an economy is lagging. Interest rates, as they effect the cost of borrowing money, effect the economy.

These statistics and the policies which impact them tend to change before the economy changes. Experts can use these statistics to make stock market predictions.

Market Indexes

Just as leading economic indicators predict and reflect economic conditions, market indexes also predict and reflect economic conditions. Understanding the trends of these indexes can help experts forecast the stock market and estimate the future price of shares.

Looking at market indexes both in the short- and long-term can provide investors with information about momentum and mean reversion.

Momentum is the assumption that the market—or a particular share—will continue in the same direction that it’s going.

Mean reversion is the idea that the market will even out over time. Mean reversion may happen over many years or decades, and can be hard to observe at a given moment.

Over the short term, or 3–12 months, momentum provides some information for investors: stocks that are going up are likely to continue to go up. However, over the long term, or 3–5 years, stocks that have gone up are likely to underperform, or revert to the mean.

Martingales are another way to approach how market indexes might help predict future stock prices.

Martingales refer to the idea that past pricing trends have no effect on future prices, and that the best predictor of tomorrow’s market price is the current price plus a small amount. The inputs for martingales are stock-specific, and include the current price and the estimated volatility.

Martingales are about tomorrow’s price, momentum is about short-term trends, and mean reversion is about long-term trends. By following stock market indexes and by using one—or all three—of these methods, an expert can make a more accurate stock market prediction.

Value

Value investors don’t believe that share prices reflect all information available or that shares necessarily trade at their fair value. These investors forecast the stock market by including information outside of the market itself.

Value investors look for stocks priced less than their book value. Value investors believe that the market reacts to good and bad news, and that stock market prices might not reflect the intrinsic value, or valuation, of a stock. These investors look to purchase undervalued stock to buy at a discount, hold long-term, and sell later at a profit.

Examining a company’s financial performance, including their revenue, earnings, cash flow, and profit as well as their business model and market can all help an investor determine the valuation of a stock. Looking at a company’s earnings reports over time can also help investors analyze a firm’s financial health.

With this information, an investor can calculate the price-to-book ratio (P/B). This ratio compares the stock price with the value of the company’s assets.

Value investors look for stocks with a below average P/B ratio. Investors purchase these stocks when they can predict that the share price will rise to a more average position.

Predicting the Stock Market

To predict the stock market, understanding the health of the economy, as well as the policies surrounding that economy, are key. Examining your goals as an investor—such as knowing your time-frame and risk tolerance—will help you choose the right information to look at.

Additionally, unusual economic circumstances can make variations in stock profitability wider and much more obvious, and these variations can help investors observe trends and make long-term stock market forecasts.

Check out our free report “Protect Your Money from a Market Crash in Two Steps”. This comprehensive guide covers everything you need to know to make it through a market crash.

Don’t Buy Too Fast

Let’s spend our mid-week market time together talking about the “bottom.” There’s nothing better than the feeling that the market has put in...

Market Preview - Week of April 21

Earnings Summary – Where Are We Now? I know what you’re saying… Sure CJ, Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL) announce their...

Wall Street’s Selling Programs are Watching These Numbers

Think about this: Most of the money that crosses the trading desks on any given day is not controlled by you and me, the retail investors. Most of...

What is a Risk-Off Situation?

Stick with me for a minute. There’s a little intro story that goes with today’s market outlook that puts things into perspective. This might...

The Market Rally is Hanging on This Single Number…

Here’s the Bottom Line at the top today… The VIX – Wall Street’s “Fear Gauge” and what I consider the one number you should be watching...

There’s a Stealth Rally Going on That Nobody is Talking About

Every week, I scan the charts of 23 different sector exchange-traded funds (ETFs) along with the leading companies from each. It’s my way of making...

Three Key Points from Jamie Dimon's Annual Shareholder Letter

Until I read Too Big to Fail by Andrew Ross Sorkin, I thought Jamie Dimon was “just another banker.” Smart, no doubt. But I didn’t realize that...

The Bond Market Doesn’t Like What the Fed is Signaling

You and I have been talking about the bond market for at least three months. More specifically, we’ve been talking about the fact that the bond...

The Timing is Just Right for a Correction

There’s just something in the air. Spring has sprung, baseball has started, the flowers are coming out… and the market is getting ready to drop...

Three “Economy” Stocks that May be Better Than the Government’s Data

One of my favorite “economy” stocks reported earnings results last quarter, and nobody appeared to be watching. They should be, though, as it...

Never Short a Boring Market (Except for Tesla Shares)

Man, this week is almost the textbook description of a boring week for a market. We’re not going to hear anything from the Federal Reserve....

You Know Sector is Performing Better than the Magnificent Seven?

Materials… if you can believe that. I know, it seems unlikely, but companies like 3M (MMM), DuPont (DD), and Martin Marietta Materials (MLM) are...

Inflation Is Getting Stubborn... But We’re Buying MORE!

Markets are closed this morning in observance of Good Friday, but the Federal Government is still hard at work (not really). We got the latest...

Speaker of the House Mike Johnson Should be Buying Gold Right Now

We talked about gold late last year, remember? It all started with this article from Bloomberg, identifying a huge trend in the world’s Central...

The “Boring” Bond Market’s Smart Money is Turning Bearish Again

There’s a reason why they call the bond market the “smartest money in the room”… Nick shot me a “Slack” on Monday that included this...

The Airlines Are in Trouble

A good investing friend of mine told me to “never own the airlines, only trade them.” Well, it looks as though the airlines are preparing to give...

The Market's Lines in the Sand

Yesterday’s selling had a few people in the financial media exclaiming that “this is what we’ve been waiting for.” True, we’ve been looking...

Will Regional Banks Repeat Last Year's 30% Drop in March?

So, from the looks of the three market indicators we just talked about, this market may continue its rally. There’s just one problem… This...

Clean Energy is Signaling Trouble for Stocks

There’s a pattern that the market follows, and it goes like this… A market rally is sparked, like we saw in November. The first stocks to take...

It’s Official: The Regional Banks Are in Trouble

Yesterday’s surge in interest rates confirmed what you’ve already known about the regional banks… they’re not out of the woods yet. For the...

Pages 1 of 4 1 2 3 4