Wednesday, January 31, 2018

Livingston forecast survey - Equities almost at year-end estimates - Now what?

The Livingston Survey, collected by the Philadelphia Fed, is one of the longest running surveys of market economists on key indicators for the economy. One of the survey questions asked every six months is the expected level of the stock market. 

The latest numbers suggest that the market will be up six percent by the end of the year but after a strong January, we are already almost there with a return of 4.75 percent for the month. The market at 282.24 is above the level set for the end of the year. The stock market, by this forecast, will have to move sideways for the next eleven months. 

The survey also reports that 10-year Treasury yields will be lower from previous forecasts at 3% but still higher for the year given a strong January increase.  Inflation is expected to be at 2.2% for the CPI for year-end, growth will be lower at 2.4% for Q2-Q4 2018, and unemployment will be 3.9 percent, slightly lower than the current level. The bottom line is that the real economy will be smooth, rates will be higher, and right now equities may be ahead of their forecasts.

If you believe in these forecasts, don't expect the same double digit returns as last year. Diversification may be a more prudent approach to asset allocation.

Below are the forecasters in the survey. This is a good list of strong economists. 

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