As people take stock of what has passed and wonder about what’s to come, is there anything to latch on to for guidance? Or is rolling dice just as likely to yield a useful forecast?
As my colleagues have written this month, most year-end predictions are useless, particularly those that portend to pick a sector that is set to soar or dictate how the stock market will perform. But this seemingly clear futility, of course, does not mean that analysts will stop making predictions or that people will cease to seek meaning in various indicators, even if they have proved mostly wrong or right only by random chance.
You will not get any predictions here. Instead you’ll get a look at three reasonable approaches — call them the 3 C’s — that investors can take to prepare themselves for next year or any year.
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The Company Approach: This approach isn’t about guessing where a stock price might finish the year; it’s about looking at how companies are performing and assessing their fundamentals.
The argument here is that a company’s fundamental sales and earnings potential can be analyzed. And while individual investors have been cautious about investing money in the stock market over the last several years, company earnings have continued to be strong.
“With so much negativity out there, you still have to put your money somewhere,” said Thorne Perkin, president of Papamarkou Wellner Asset Management. “We’ve had a theme of U.S. pre-eminence, which we’ve had for years. U.S. equity is the place to be.”
Some of the company approach has its basis in how stock markets typically perform. About three-quarters of the time, they go up. And consumers keep buying things.
Of course, if there is some external shock — say, a trade war or a foreign policy crisis — then it could affect how, when and where companies sell things. And this uncertainty is where the company approach can have pitfalls: What is known now is not everything.
The Consumer Approach: If there is one popular barometer of how people feel, it is consumer confidence. In December the Consumer Confidence Index was up after rising in November as well. A related indicator about consumer expectations was up even more sharply this month.
