Making predictions about capital markets is much like going to Vegas; it may be fun, but it’s a gamble. There’s nothing reliable about any market predictions, particularly in the short run. Why? Because investor psychology and momentum tend to factor heavily into the markets over short periods, whereas economic activity tends to drive financial asset pricing over the longer term. Not surprisingly, we have more confidence in our long-run forecasts than in any view we may express for periods shorter than a few years. In other words, we have a pretty good understanding of the market’s potential over the next 10 years, but we wouldn’t venture to predict what path we’ll take to get there from here.
With this understanding, in this issue of Market and Economic Outlook, we offer support of our long-range view that the sun may not be shining brightly today, but the storm clouds aren’t gathering, either.
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