Tags: Prestbo | Dow | stock | increase

MarketWatch's Prestbo: History Suggests 60 Percent Chance of Stock Increase This Year

By Dan Weil   |   Wednesday, 22 Jan 2014 10:32 AM

While there is much talk of stocks slumping in 2014 after their jump up last year, history indicates otherwise, writes John Prestbo of MarketWatch.

The Dow Jones Industrial Average soared 26.5 percent last year, so he looked at the other 18 years in which the Dow has gained between 20 and 30 percent.

In the first year following those gains, the Dow averaged an increase of 6.8 percent. It rose in 11 years — by an average of 16.6 percent — and it fell in seven years — by an average of 8.8 percent.

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That means the Dow rose in 61 percent of the 18 instances. "Thus, history suggests a 60 percent chance that the market will rise this year, though perhaps not as much as last year," Prestbo, former editor and executive director of Dow Jones Indexes, writes.

"However, a 40 percent chance of a decline is too big to dismiss. The final result could depend on the correction. If it occurs early in the year, doesn't deepen into a bear market and is finished in three or four months, there will be more opportunity for recovery before the calendar runs out."

Byron Wien, vice chairman at Blackstone Advisory Partners, expects the Standard & Poor's 500 Index to register a 20 percent gain this year, but he expects a 10 percent correction first.

"What's going to cause it is that everybody's on one side of the boat here," he tells CNBC.

"When investor sentiment is as positive as this, [the market is] usually vulnerable to any kind of a disappointment."

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