Around the first of the year there is always a bunch of talk about where the market is headed in the coming year. It doesn’t really have much bearing on whether your individual stock selections are good investments or not, but it gives people the opportunity to guess at the market’s direction.

I have been reading a lot of articles that say we are in for another good year. I don’t agree. I think the market will end the year essentially where it began or down on the year. If the market is up on the year I don’t see it being up very much. The Dow was up over sixteen percent last year and most of that run came in the second half of the year. The Nasdaq also made a run of over seventeen percent (from its lows) in the second half of the year. I think the markets have gotten ahead of themselves and they need to take a breather.

The U.S. economy isn’t predicted to grow very fast and the economy is ultimately what the markets will follow. There is even the possibility that the economy will go into a recession. While I don’t think a recession is likely, I don’t think the economy will grow enough to justify much of a gain, if any, in the markets.

Even if the markets don’t gain much next year, I would stay fully invested in the stock market. The direction of the broader markets have no bearing on whether individual stocks are undervalued or not and there are plenty of stocks with cheap valuations.

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