Can experts predict market turning points?
The market’s prediction power
It seems logical to expect equity markets to fall if the economy hits a recession. If investors as a group are skilled at predicting the future, then a bear market should precede each recession. In a 1966 Newsweek article, economist Paul Samuelson famously remarked that the stock market had predicted nine of the past five recessions. His tongue-in-cheek comment actually holds true – in 13 post-war US equity bear markets there have been only seven recessions within 12 months (source: CNBC). That’s a 53% hit rate – or essentially about the same as a coin toss.
This indicates that the market (i.e. investors acting in aggregate) may not be a great predictor of downturns. But what about as individual investors – is it possible to time the market and pick turning points? Can experts help?
Listen to the experts….
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