Market Overview

Market Strategists Are Both Right And Wrong At The Same Time

Market Strategists Are Both Right And Wrong At The Same Time

Set your clocks back to December 31, 2015. Imagine a futurist accurately tells you Britain will vote to leave the European Union, Donald Trump will win the Republican nomination, terrorism will strike major European cities, Brazil's presidency will spiral into turmoil and a military coup will occur in Europe's backyard.

So, where would you predict the market to trade at mid-year? The "textbook" answer would likely be to run for the hills. As it turns out, the correct answer is major indices will establish new historical all-time highs by mid-year.

"You probably would have done worse if you knew the outcomes ahead of time," Bill Stone, chief investment strategist at PNC Wealth Management told Bloomberg in an interview. "Recent events certainly illustrate the futility of trying to make investment decisions based on geopolitical outcomes."

Related Link: Bill Ackman Vs. Herbalife: The Saga Continues

Market strategists who accurately predicted political uncertainty and danger were wrong in calling for a drop in equities. On the other hand, market strategists who called for higher equity prices on a reduction of political turmoil and terrorism were also right and wrong at the same time.

What Now?

Knowing what we know, the question investors are asking is how the realities of our time could be used to model stock valuations moving forward.

According to Bloomberg, U.S. stocks recently rose above 20 times their earnings for the first time in seven years. Meanwhile, corporate profits isn't necessarily rising, stock buybacks and M&A activity are declining. Yet, most major indices are within striking distance of new historical all-time highs.

Is there even any point in trying to forecast where the markets are heading?

"The market is very focused on yield and has taken its eye off other fundamental factors," Bloomberg quoted Andrew MacFarlane, an emerging-markets credit strategist at BNP Paribas as saying. "When you're really eager to get a return on your money, you're willing to overlook things that you may otherwise look at more carefully."

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