The stock market has been highly volatile but due to the extraordinary return on equities during the year 2013, especially of the S&P 500 Index, it has been predicted that the year 2014 would be good too. The annual return of this last year has been 30%, and the fact is since 1870, there had been only 30 occasions when the annual return crossed 25%. Individual investors would obviously use the historical prices to make their decisions (Swedroe, 2014). Considering the year 2013 in particular, the rate of return shows a 26.81% appreciation in the Index. Over the last three years, there has been a 14.90% total return whereas if the average of the last five years is taken into consideration, the return has still been in double-digits that were 19.25% that is good. For the volume of prices, there has been an appreciation of 121.01% over the five year. This is quiet satisfying; the past performance of the Index especially the annual returns predicts that the stock market would have greater returns in the coming year too. The economy of the country is fine, and so is the earnings, but some issue shall be created by the Fed, that might affect the returns. Though the returns increased especially in the last year, but this cannot be negated by looking at the historical prices, that the double digit returns have been decelerating over the period of time. The expected growth in earnings is 10% for the year 2014, and if this remains so, then it is expected that the returns would be fair around 10%-12% (Ferri, 2014). With the historical prices and the current situation of the country, the expectations are still fair enough. However the wild card remains with the Federal Reserve. If the Fed remains accommodative, it is highly likely that the stock prices would trade at higher values than the historical prices. If the rate of return is calculated for the last 10 years, the average return is 7.30%, and for last five years, it has been 7.18% that increased to 14.15% for the last three years. The historical pattern of the prices and the rates depict a good year ahead with returns in double digits.
References
Ferri, R. (2014). 30-year market forecast for investment planning, 2014 edition. Forbes, 9th Jan.
Swedroe, L. (2014). Returns from the stock market: what to expect. [online] 17th July. Retrieved from: http://www.cbsnews.com/news/returns-from-the-stock-market-what-to-expect/ [Accessed: 21 Jan 2014].
