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Rainfall a predictor of stock returns
Old 06-23-2014, 07:21 AM   #1
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Join Date: Jul 2013
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Rainfall a predictor of stock returns

portion of article by columnist Will Deaner in Dallas Morning News...

Much of what people think moves the stock market doesnít.
Iím reminded of this every time I see another story in the financial press about the chronically sluggish U.S. economy and the headwind that presupposes for stocks.
While that sounds reasonable enough, it doesnít contain the commendable merit of being true. There is essentially no correlation between U.S. economic growth and the stock market ó nada.
In fact, stock markets around the world actually tend to perform better during periods of slow economic growth. I know thatís counter-intuitive, but a number of studies in recent years confirm this.
For example, Vanguard examined U.S. stock returns back to 1926 to assess the impact of more than a dozen metrics on the market. Researchers looked at such things as stock valuations (price-to-earnings ratios), economic growth, dividend yields and even rainfall to determine if they were predictors of future stock returns.
Economic growth, or gross domestic product (GDP), showed zero correlation, meaning it has no predictive value in determining future stock values.
On the correlation scale where 1.0 represented very strong predictability, GDP came in at 0.0 ó the same level as the trailing 12-month stock returns. Rainfall at least came in at 0.06 on the scale.
ďMany popular signals [that investors watch] have had a lower correlation with the future return of stocks than rainfall ó a metric few would link to Wall Street performance,Ē the Vanguard researchers said.
The strongest link
The metric with the highest correlation was p/e ratios at 0.43. In other words, one of the best predictors of stock market performance, say, over the next 10 years, is the starting valuation at the beginning of the period ó and the lower the better.

he goes on to say he expects 6 to 8% annualized growth over next several years.. here's the link, but I think you would need to be a subscriber to read the full article
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