ZenInvestor 12 Month Forecast

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by Erik Conley

May 13, 2018

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12 month forecast for the economy, the stock market, corporate earnings, interest rates, and inflation.

 

Chart 1. Real GDP from 1979 to present

GDP growth will likely see an increase in Q2 due to the impact of the tax cuts. After that, we expect GDP growth to ease back down to the 2.5% pace we have become accustomed to.

 

Chart 2. Inflation from 1979 to present

We expect a gradual rise in the inflation rate over the next 12 months, but not enough to cause the Fed to become more aggressive with rate increases.
Chart 3. The stock market from 2007 to present

 

The probability of a bear market within the next 12 months is only 21%. We expect the market to make at least one more new high before it starts to roll over in late 2018 or early 2019.
Chart 4. Growth of corporate earnings
earnings growth

 

Earnings growth has been very robust recently, and we expect this to continue. The pace of growth will probably cool somewhat, but we don’t expect anything close to an earnings recession in the next 12 months.

 

 

Chart 5. 10-yr Treasury Bond

Now that the rate on the 10-yr Treasury bond has pierced the 3% level, we expect to see more of this in the next 12 months. The rate will likely be 3.5-3.75% by the end of this year. Short-term rates (Fed Funds) will likely continue to move higher, possibly to 2.5% by year-end.

Our methodology

We use a Bayesian probability model to arrive at our 12 month forecasts. Each month we recalculate the forecasts to reflect new information that has become available. The forecasts usually don’t change radically from month to month, but when we see evidence of a recession or a bear market on the horizon, our forecasts can change quickly.

If you have questions about our forecasts, contact me through the website at info@zeninvestor.org

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About the author 

Erik Conley

Former head of equity trading, Northern Trust Bank, Chicago. Teacher, trainer, mentor, market historian, and perpetual student of all things related to the stock market and excellence in investing.

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