statistics

Stock Trends Reversing to the Mean

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stock market revert to mean

Nothing makes a financial journalist salivate more than the sweet sound of statistics to make their stock market warning article sound more legitimate. Of course, numerous statistics are meaningless, others are easily cherry-picked based on data, and still others are far less useful or predictive than other statistics that might not say the same thing. Today’s fun example comes courtesy of MarketWatch and the gloomy warning that U.S. Stocks could be in for a world of hurt if this trend reverses to the mean. Check out my Rakuten rebates review. “World of hurt?” – Whew! Pulling hard on our masculine headline click bait phrase dictionary this morning are we? What Is Reversing to the Mean? Reverting to the mean is the statistical probability that for any observation away from the mean, the more likely the next observation will be closer to the mean. An easy way to think of this is if the mean speed of cars passing by on a road is 55 mph, and one goes by at 95 mph, statistically the next card that goes by will do so at a speed closer to the mean than 95 mph, that is 94 mph or less. Obviously, this …

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What Is the Misery Index?

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There are few institutions examined more scientifically or mathematically than the U.S. economy. After all, in-depth understanding of economic conditions mean billions of dollars to the right people and policy makers. Unfortunately, a nation’s economy is a complex machine composed of an almost infinite number of moving parts. Economists seek to study and understand the economy in many ways, often by simplifying things with numbers and formulas. One of my favorite names for an economic statistic is the Misery Index. How to Calculate Misery Index The original Misery Index was surprisingly simple. You calculate the Misery Index by adding the unemployment rate to the inflation rate. The idea is that both unemployment and inflation are negative factors acting against a positive economy. By combining them, you could get some idea of how much of a headwind the economy is facing. Under this methodology, things would be worst during a time where unemployment was high and inflation was also high. Also, check out this review of Credit Karma Ironically, the Misery Index can peak right before a strong recovery. Consider a situation where there has been a recession or depression. Unemployment rises as companies lay off workers to reduce costs and …

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April Jobs Report Could Have Big Impact On Stocks

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The April jobs report is due out from the U.S. Labor Department on Friday. While economic statistics typically have a temporary effect on Wall Street before being shoved aside by whatever bit of news or data arrives a few days later, the April jobs number could be a bigger deal than usual. Recently, the Federal Reserve left interest rates unchanged. Following the announcement, Fed Chairman Ben Bernanke held the first ever Fed press conference in which he laid out the Fed’s view of the U.S. economy. He suggested that the economic recovery is slowing. He didn’t use the word fragile, but plenty of people heard it anyway. He also suggested that inflation was tame and that any uptick was dwarfed by the greater potential for a slowdown in growth. Jobs Key to Economic Recovery Business spending has been measured, despite a tiny boom going on in Silicon Valley. Consumer spending has been whacked by not only by widespread job losses, but also by the housing market crash and subsequent collapse of the mortgage industry. Many homeowners have no equity left in their homes. Those that do are finding that terms for second mortgages are no better than the difficulties faced …

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Inflation Stays Tame – Fed Not Raising Rates Soon

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Everyone is worried about if and when the Federal Reserve will raise interest rates, even though the Fed itself continues to say that it is not considering doing so. That is what happens when interest rates are so low (basically just above zero) that everyone knows the only way they can go is up.