This story appears in the January 19, 2015 issue of Forbes.
In 2015 expect an S&P 500 and global bull market extension of 15%-plus. Why?
On June 30 I detailed why fourth quarters in midterm election years were historically positive 86.4% of the time–because markets don’t discount the goodies in increased gridlock–and why that continues for the next two quarters, both also 86.4% positive, history’s most positive continuous three quarters extant. Believe it.
Just so, third years of Presidents’ terms haven’t gone negative since 1939 and that was only -0.9% as Europe literally blew apart. Average third-year return? 18.5%. Excluding four single-digit years, the positives averaged 27.2%. Gridlock is great!
I make this prediction on the heels of a pretty accurate 2014. Last January professional forecasters clustered tightly around 6% return expectations. Since markets tend to do much better or worse when forecasts cluster, and since I wasn’t foreseeing worse, I expected better. Today that cluster sits at 8% (the highest, 14%, comes via Piper Jaffray). So expect higher still.
Last April I detailed why bull markets die in only two ways: running out of steam after climbing to the top of the wall of worry, or an emerging wallop of big badness that surprises everyone. In a $75 trillion global GDP, that wallop needs to be over $2 trillion in size. Could happen, but without such a cataclysm stocks bull on. Today’s sentiment is far from the euphoria in John Templeton’s great wall of worry depiction, which holds that “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
Europhobes are wrong again. No recession there, though most think there is or will be. I’ve previously laid out the power of the Conference Board Leading Economic Index to predict recession. Overall, Europe’s numbers are mildly positive. Ignore Italian and Greek problems–again.