Looking to the future
We use data back around 20-30 years for looking at the Stock Market, in this case the FTSE-100, to look at different conditions and the results from there. We split this into either technical or fundamental indicators – technical can be described as “market action” and investor behaviour whilst fundamental will be more focused on issues such as revenues, profits, cash flows and dividends.
Market Action
Updating our chart of best and worst conditions shows that whilst we may not be in a high risk environment, it is not obviously a great time to invest as we saw in 2002-2003 and then again through 2009 and briefly in 2010/2011.However looking at one indicator alone is a route to disaster; the above certainly provides a guideline but I have to raise some questions – such as how the bull run driven Quantitative Easing has extended for over 6 years and the effect that this may have had on these indicators.
Moving then to fundamentals, and price ratios of a basket of FTSE-100 shares, we construct a statistical model that provides an indication of future returns for the next 5 years – recent declines had improved the position but it remains at -0.57% p.a.
Putting in the best and worst time from a fundamentals perspective also suggests that a cautious approach should be maintained.
“Combinations of indicators allow you to create a framework for decisions”
– Andrew Chorley
