The document provides a prediction for the stock market and Dow Jones Industrial Average in 2014. It analyzes several indicators that could affect the market such as inflation rates, gold prices, and the Federal Reserve's tapering of quantitative easing. Based on these factors, the document predicts that inflation will increase in 2014, gold prices will rise, and the Dow Jones will decline, resulting in an overall bearish market.

1. Stock Market prediction
In
Accordance with
DOW JONES

2. TABLE OF CONTENTS
Ch. No. Title Page No.
1. Overview 1
2. Indicators Affecting Market 3
2.1 Inflation rate prediction 3
2.2 Gold Price prediction 4
3. Dow Jones Industrial Average Prediction 6
List of References 7

3. Overview
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Global Economic Cycle from 1985
It is believed that the stock market history is repeated after every once in a while as can be
determined by plotting the graph for the previous global economy cycle future of the
economy can be predicted. As it is seen bear follows the bull and vice versa. As has been
shown by the graph above U.S market is currently in a bullish market situation which is
expected to be followed by the bearish market situation. Last year’s situation as being in the
bull market can be explained by following facts. Returns of U.S. stocks last year were even
more impressive when considered that economic growth was hardly robust as taxes were
hiked and government spending was reduced. The Federal Reserve began to taper its
unprecedented $85 billion monthly bond-buying program, the yield on the benchmark 10-
year U.S. Treasury shot higher and corporate profit growth was far from stellar. Although all
these were the factors which hinder the growth of market in spite of them the magnitude of
the advance last year took everyone by surprise, especially when compared to the historical
10% to 12% per-annum average returns for U.S. equities over the past eight-plus decades.
The Dow Jones Emerging Market Index actually posted a small loss of 0.7% while the Dow
Jones Global ex-U.S. Index returned ‘only’ 16.0% (both in U.S. dollars). Investment
alternatives outside of stocks, precious metals were anything but in 2013, as gold tumbled
28.6%, silver plunged 36.6% and platinum dropped 11.8%. Total return calculations from
Barclays Capital show the Intermediate-Term Treasury and Mortgage-Backed Securities
indexes inching lower by 1.3% to 1.4%, while the U.S. Credit Index AA-rated segment and
the Municipal Bond index dipped by 2.5% to 2.7%. Incredibly, the Long-Term Treasury
index plunged by a whopping 12.7%, though the High Yield index actually increased
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4. 6.6%.The Dow rose above 16,000. Not to be outdone, the S&P 500 briefly rose above the
never-seen-before 1,800 level.
One bear and bull market can be studied as:-
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Bear and Bull market analysis
Bear and Bull market describes long-term trends, not short-term changes in fact these are
usually measured in years. A bull market is a rising market. In a bull market, investors are
positive and there is low unemployment and the economic condition is strong and hence
strong market. These increases the demand and now consumers are ready to spend more
which leads to greater profitability. With increase profitability investors invest more in a
market and buy stocks and watch closely for the profits generated this leads to low supply of
shares as price of share increases but shares are limited which will further lead to more fierce
competitors among the investors leading to rise in prices of the shares.
A bear market is a declining market which begins with a sharp drop of stock prices and also
marked by a small period where the stock prices increases and then again followed by a dip
in stock market after which market falls rapidly it has also been shown in history that stocks
can fall even up to 40 percent of the value from where it began. As marked during the Great
depression where the value of the stock fell up to 90 percent from where they had begun. In a
bear market, the economy tends to be weak and there is increase in unemployment
Consumers start spending less which generates lower profits.This will devalue company’s
stock price which will lead investors to sell the stocks before it values decreases more.
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5. Indicators affecting Market
Inflation rate prediction
Inflation, a rise in the general level of prices caused by excessive money creation, is not an
easy thing to measure. Prices for individual items fluctuate constantly for reasons that have
nothing to do with inflation, and an accurate measure of inflation must distinguish between
these relative price movements and inflation.
Many price statistics are available to keep tabs on average prices. Some, like the Consumer
Price Index (CPI) or the Personal Consumption Expenditures index (PCE), track the prices
consumers pay for things. Others, like the Producer Price Indexes (PPI), track the prices
producers receive for the goods or services provided. GDP deflator is a broad index based on
GDP (Gross Domestic Product). There are some statistics which are more specific such as
Employment cost index which tracks change in labour cost, IPP (Internal price Programs)
which track changes in foreign trade sector.
How CPI effects Market
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6. Above shows how CPI affects stock market. CPI affects the monetary policy of the Fed bank
which causes the variation in the stock price.
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Effect of Inflation on Dow Jones, S&P 500, Nasdaq
As U.S government has announced 85 bn $ quantitative easing which has been tapered 65
bn$ which in return will rise the CPI due to which there will be increase in interest rates
which will be a bad news for the investors and hence Dow Jones will take a dip and follow
into a Bear market.
Gold price prediction
Gold bullion are often compared as they are fundamentally different due to their contrasting
nature which has been observed in past. Some regard Gold as store of value without any
growth whereas stocks are considered to be as return on value which indicates growth is
expected from them. Stocks and bonds perform best in a stable political climate with strong
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7. property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial
Average divided by the price of an ounce of gold. Since 1800, stocks have consistently
gained value in comparison to gold in part because of the stability of the American political
system. This appreciation has been cyclical with long periods of stock outperformance
followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio
of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains
throughout the 1980s and 1990s.
Source: http://www.stocks-for-beginners.com/gold-market-price.html
Gold vs DJIA from 1960
2013 was an unlucky year for gold as it suffered a 28% drop, ending the year at around
$1,200 per ounce - the worst slump in more than three decades. It was not one event that
affected the gold market in 2013. A multitude of factors - the Federal Reserve's taper or no
taper confusion, conflict in Syria and the U.S. government's partial shutdown, and finally the
taper call at year end - pushed gold prices downhill through the year.
Gold prices are expected to extend their 2014 recovery and hit $1,400 an ounce later in the
year, the highest since September, according to analysts at Citi Futures and RBC Wealth
Management.The precious metal has also closed above its 50-day gauge in every session
since 23 January.
That pattern indicated prices would rally 8.5% by the end of March 2014, said Sterling Smith
of Citi Futures.
Prices would reach $1,400 by the end of 2014 if open interest, or the number of contracts
outstanding, was to raise, according to George Gero, a vice president at RBC Wealth
Management. This assumption indicates that the gold may rise in 2014 which will lead the
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8. contrary effect on the stock market hence the stock market is expected for negative growth
and hence Dow Jones will also follow a bearish market.
Dow Jones Industrial Average Prediction
There is no doubt that the economic recovery has been sluggish and the improvement in the
labour market has been disappointingly slow. It is observed that there may be accelerating in
employment and in last few weeks of 2013 has witnessed a cyclical upswing that could
provide a tailwind into 2014.
Valuations are currently bearish. Prices of the stocks in 2013 have been believed to be left
overpriced in variety of aspects. In recent years growth has more been due to effects of
productivity enhancement and lower interest rates which have maintained profit margins
higher.This has led to increased leverage which could negatively impact earnings if sales start
declining.
Also as seen above that CPI has effect on inflation which is also expected to increase and
tapering will also cause the inverse effect on market which causes market of Dow Jones to go
down. Gold prices are supposed to be having bullish effect this year which also has a
opposite effect on the stock prices of the Dow Jones. Above all the scenarios predict that the
market in 2014 would be bearish and hence the stock market for Dow Jones will decline.
Source: http://www.forecasts.org/djia.htm
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9. References
1. http://www.forbes.com/sites/robertlenzner/2013/12/30/i-dont-know-anyone-who-
predicted-a-five-year-bull-market/ (accessed on Feb 11,2014)
2. http://seekingalpha.com/article/850631-gold-showdown-mining-stocks-vs-
gld (accessed on Feb 12,2014)
3. http://www.bloomberg.com/news/2013-09-09/joseph-granville-bearish-
stock-newsletter-publisher-dies-at-90.html (accessed on Feb 11,2014)
4. www.forecasts.org/djia.htm (accessed on Feb 12,2014)
5. http://www.kiplinger.com/article/investing/T052-C000-S002-kiplinger-2014-
stock-market-outlook-more-gains.html (accessed on Feb 11,2014)
6. http://money.msn.com/top-stocks/post--how-will-the-dow-fare-in-2014 (accessed
on Feb 11,2014)
7. https://www.google.com/finance?cid=983582 (accessed on Feb 11,2014)
8. http://www.nowandfutures.com/forecast.html (accessed on Feb 11,2014)
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