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Learn from stock trading history

TradingPub Admin | December 27, 2012

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If you want some insight into what stocks might do in the future, one good way to gather information is to review the history of these securities.

Stock Market Data 
While many a financial expert and institution will tell you that past performance does not guarantee future performance, you can still harness historical data when determining your investment plans.

The stock market performed very well in 2012, even as investors were roiled by widespread uncertainty stemming from major events such as Hurricane Sandy and the looming fiscal cliff.

According to a U.S. News and World Report column by financial writer Tom Sightings, the appreciation enjoyed by equities in 2012 could continue into next year, supported by various gradually improving aspects of the economy.

Cause for Optimism 
The author asserts that Europe is currently on the mend, that concerns about flagging growth in China are exaggerated, and that the U.S. economy could accelerate its current expansion, the media outlet reports. As political uncertainty wanes, the labor market steadily improves, and consumer sentiment recovers, growth could speed up.

2012 Market Wariness 
The S&P 500 Index, a group of blue-chip stocks measured frequently, surged 13 percent during the first 11 months of 2012, according to data compiled by Boston-based financial research firm EPFR Global and reported by CNNMoney.

Even though this highly visible group of stocks generated robust gains during the period, it came as global investors withdrew $152 billion from mutual funds and exchange traded funds that contain equities.

The media outlet notes that individual investors and institutions have acted very differently during 2012, with the former group shunning stocks and the the latter seeking them. Institutional investors put $80 billion in equities thus far in the year.

In November alone, individual retail investors took close to $19 billion out of stocks, the greatest amount since August 2011, when markets were spooked by the national debt dilemma and the decision made by Standard & Poor's to lower the credit rating of the United States.

CNN Money reports that in November, investors fled stocks as fiscal cliff concerns eroded confidence. While these global market participants have seemed wary of equities since 2005, their aversion to these assets heightened in 2010 as outflows increased.

The exodus from stocks has largely been blamed on the Baby Boomer generation, which has moved toward bond funds after the sharp losses suffered in the recent financial crisis.

2013 Prospects 
Sightings notes in U.S. News and World Report that stocks tend to surge during a year that contains a presidential election, rising an average of 8 percent. In 2012, the gain was almost twice that.

However, the returns enjoyed in the year after an election are generally lower. According to data provided by Ned Davis Research, equities rise an average of 5 percent in the first year of a new presidential term. In the second year of this term, this appreciation falls to 4 percent.

On the plus side, the data provided by this firm reveals that during the third year of a presidential election, returns surge, with this period averaging 12 percent gains. In the fourth year, stocks generate returns averaging 8 percent.

Clearly, this is data provided by only one research firm. Moves in the stock market are explained in various ways, and there are a great many variables involved. At any rate, you can benefit from increasing your knowledge of equity markets and making better-informed investments.

One way you can increase your knowledge is to access quality stock trading education available through TradingPub, home to some of the top investors and traders in the industry.