The Benefits of Base Rates

By Jack Forehand (@practicalquant) —   Wall Street prediction season is upon us. It is the time of year when all the major investment banks and market pundits will issue their 2019 market outlooks. They will tell you what they think will happen in the next year and will even by nice enough to give you exact price targets they think the S&P 500 will reach by year end. Unfortunately for all of us, those predictions won’t… Read More

JPMorgan: Late Cycle Can Bring Big Gains

A recent Bloomberg article addresses the question of whether to “push the sell button on winning trades,” given that the global economy has entered the late stages of the current cycle. According to JPMorgan, the article reports, investors shouldn’t be in a rush. In a recent note, JPMorgan global market strategist Samantha Azzarello wrote, “Indeed, this ‘late stage’ could be long, sticky and drawn out, just like the broader cycle. Calling the end would be… Read More

Investor Lessons from the Summer of ’69

According to BlackRock Inc. strategists, similarities between the late sixties and today are raising concerns regarding the implications of rising inflation expectations and bond yields, says a recent Bloomberg article. “The late sixties was when late-cycle fiscal stimulus contributed to runaway inflation, leading the Federal Reserve to aggressively raise interest rates, which was followed by an inverted yield curve and a recession,” the strategists argue, which led to a drop in both stocks and bonds. According… Read More

Shades of the Swinging Sixties Raise Inflation Fears

A recent Bloomberg article underscores the similarity between today’s market conditions and those of the 1960s; specifically, how low unemployment set inflation on an upward run, “virtually doubling over the year to 3 percent.” Some economists, the article reports, see trouble looming again. The article quotes Paul Tudor Jones, founder of hedge fund Tudor Investment Corp., who told Goldman Sachs, “This reminds me of the late 1960s when we experimented with low rates and fiscal… Read More

Barry Ritholtz on the Bull Market’s Birthday

In a recent Bloomberg column, Barry Ritholtz shares insights on what he characterizes as the distinct differences between bear market recoveries and bull markets, arguing that while March 9, 2009 was a bear market bottom, “we only know that with the benefit of hindsight.” Looking at the “spectacular gains” the market has seen since 2009, Ritholtz argues, “creates a very misleading picture. It ignores the collective psychology of the time—lots of investors back in March… Read More

Research Affiliates on the Dangers of Using Past Returns to Predict the Future

In the first of an eight-part series, Research Affiliates addresses market returns and the dangers financial planners face with respect to setting expectations for clients. Specifically, the article highlights the following key points: Using historical returns to forecast the future is one of the most common shortcuts in financial planning” although, the article points out, the topic hasn’t received the same attention as fees, the need for rebalancing, performance chasing, or diversification. The article addresses… Read More

Inflation and Stock Price Increases Causing Worry

Earlier this month, inflation and interest rate concerns sent stocks into a “historic and nerve-rattling plunge,” but the market rallied shortly thereafter, leading some experts to say that stocks can continue to rally even if both indicators creep upward. This according to an article in The New York Times. According to Brian Nick, chief investment strategist for Nuveen, while the past 20 years have seen a strong correlation between stocks and interest rates, the same… Read More

Stock Market Returns on Internet Are Wrong

A recent article in the Financial Times highlights the tendency to “use the US market as an example” of long-term profit potential in the stock market since there is so much historical data for this, the “biggest, deepest, and most celebrated market of them all.” However, the article argues, the U.S. market may be an outlier. It cites the example of the construction of pension systems, pointing out that the world may have “mistakenly treated… Read More

Lessons Learned from 1929 Crash Predictions

In a 1929, pre-crash speech, esteemed economist Irving Fisher became notorious for declaring that U.S. stock prices had reached “what looks like a permanently high plateau,” writes Jason Zweig of The Wall Street Journal. Citing data from then-renowned statistician Karl Karsten, Fisher argued that the stock market was “up to 25% overvalued by early 1929.” In 1931, however, Karsten wrote a book outlining the flaws in his prediction method and warned against forecasting in general,… Read More

Are We Partying Like its 1999?

By Jack M. Forehand (@practicalquant) —  One of the most common comparisons I hear for the current state of the stock market is the bubble of the late 90s. With the market seemingly setting new highs every day, valuations stretched, and technology stocks leading the way, there appear to be many similarities on the surface. When you look deeper, however, there are also some clear differences. Given that the 90s rally ended on a bad… Read More