 In our last issue we asked what impact the Democratic control in Congress might that have on equity values. Your consensus was:
The split-party government will have a minimal impact on the market.
Market returns over the next two years will be about the same as the long-term average.
Market volatility over the next two years will be about the same as the long-term average.
This is a safe response, but we wonder the extent to which we influenced the outcome by how we framed the questions.
The long-term average annual stock market return in the U.S. was about 8.5% since 1802 (source: G. William Schwert, University of Rochester, http://schwert.ssb.
rochester.edu/data.htm). The long-term average volatility (one standard deviation of annual return) over that period was about 19%.
The average annual stock market return over the last five years was 4.9% and over the last two years 8.1%. Volatility over that last five years was 18% and over the last two years 13%.
So, depending upon how readers interpreted the question, the consensus forecast for returns is in the range of 4.9% to 8.5%, with annualized volatility in the range of 13% to 19%. No matter which party controls Congress, that's a politically savvy response. |
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 Please share your opinion on this issue's question:
Where is Market Volatility headed?
Thanks for confidentially sharing your opinion!
VIX Volatility Index
(daily, and smoothed)
Click for full-size graph
On February 27, the U.S. equity markets dropped 3% in a day, and the VIX volatility index posted its highest daily percentage gain (albeit from a low prior base) in many years. Since then the stock market has continued to be more volatile, but is still relatively docile compared with the whipsaws in volatility experienced during the spring and summer of 2002 (see chart. Source: CBOE).
This issue's question is simply: where do you forecast the VIX volatility index to be on July 1, 2007?
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