A 2012 Stock Market Volatility Forecast

by Jeannette Di Louie

A 2012 Stock Market Volatility Forecast

by Jeannette Di Louie, Investment U Research

Thursday, January 5, 2011

Stocks around the world seemed to start out the New Year strongly on Tuesday, the first trading day of 2012. In an overwhelming show of optimism, they shrugged off all of the global negativity and uncertainty of 2011 with a New Year's resolution to start out fresh.

In the United States, the Dow, Nasdaq and S&P 500 all shot up at least 2% in morning trading, while European and Asian markets climbed moderately to impressively high, as well. It all occurred thanks to a round of positive economic data that seemed to indicate 2011 wasn't as scary as we all thought it was and, therefore, 2012 wouldn't be nearly so difficult.

How could anybody think otherwise when:

  • U.S. manufacturing rose at its fastest pace since July in December
  • U.S. construction spending climbed 1.2% in November
  • Germany reported 2011 unemployment numbers that were its best in two decades
  • China's Purchasing Managers Index, which tracks non-manufacturing sectors, hit a strong 56.0 in December after particularly worrisome figures in November

Clearly, everything is just peachy in the areas of the world everyone was worrying about only a week ago. The U.S. economy is recovering after all, Europe finances aren't doomed and China's odd mix of socialism and capitalism really can work just like they say it does.Right?If only things were that simple... and cheery.

The Futility of Making Predictions... Except for This One

Predictions are like statistics; they're only right 20% of the time. (And yes, I just made up that figure on the spot.)

Everybody loves to make predictions and everybody loves to quote statistics. But just because they're so popular doesn't make them correct. So when you hear “everybody” optimistically saying that January's market action is a great indication of how the rest of the year will play out, remember two things...

Number one, it isn't a flawless predictor, and number two, January isn't over by a long shot. 2012 has just begun, and it's carrying all of last year's problems with it, no matter what the markets might be forecasting now.

In other words, expect wild market fluctuations to be the near-norm for at least as long as it takes Europe, the United States and even China to get their many problems sorted out. And considering the mule-headed politicians who dominate each country, that will probably take a while.

So if you want to predict anything going forward into 2012, predict that you won't be able to predict the day-to-day market movement.

You Don't Need Predictions in 2012

With that all said, just because you can't make a safe bet on what tomorrow's stock will do this year doesn't mean that you have to sit out on the sidelines.

It simply means that you're better off exercising caution in this market than jumping in without any hesitation. And that's true of any market, not just all-but-insane ones like what we've become familiar with.

All the same, there are still plenty of high quality shares you can buy from high quality companies in the form of momentum stocks, dividend-yielding stocks, foreign market stocks, etc.

Investment U covers dozens of them every month. And, if you want some additional guidance, so does The Oxford Club, which you can learn more about by clicking here.

But if you do decide to go about it all on your own, just keep in mind that the markets won't really settle down until the global crisis does...

And that could take a while longer.

Good Investing,

Jeannette Di Louie

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