There’s a two-out-of-three chance the U.S. stock market will rise in 2022. A 66% probability of a rising market next year seems downright attractive, given that equities have more than doubled over the past 18 months. What many investors don’t realize is that these market odds stay the same from year to year, regardless of what’s come before.
Both investors and contrarians are wrong, because the stock market discounts the future, not the past. As market theoreticians teach us, an efficient market’s level at any given time should reflect all information that is publicly-available. According to Lawrence Tint, the former U.S. CEO of BGI, the organization that created iShares , that means the market will rise or fall according to changes in anticipated future returns.
The other columns of the chart likewise show that remarkably similar odds emerge when we slice and dice the data in different ways. For example, if the stock market falls in a given calendar year, the odds of stocks rising in the subsequent year are 67%. From a statistical perspective, this is no different than the odds that occur in other years.
Your reaction to these statistics will depend on whether you see the glass as half-full or half-empty. If you’re in the former camp, you will celebrate the two-out-of-three odds the market will rise next year, whereas if you’re in the glass-is-half-empty camp you will focus on the one-out-of-three odds of its falling. Regardless, what happens to stocks in 2022 will have nothing to do with how the market has performed this year.
There's a lot of opinion a collapse cometh as well. So ...
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