Market forecasts are projections of how a given market will perform during a specific period of time. The general idea of a market forecast is used in a number of different applications, with stock market forecasts being one of the most common. However, the same principles can be used to create a forecast for the housing market, predict trends in the foreign exchange market, and even identify and project returns and losses in the insurance market.
The process of creating market forecasts involves collecting data on what has been, assessing current marketing conditions, and identifying factors that are likely to exert some influence on future movements within the market. With that data in hand, it is possible to create a viable projection of where the market will be in a few months, next year, and even several years down the road. Market forecasts are helpful in planning both short-term and long-term investments, and are often considered to be essential to evaluating any type of business deal.
With stock market forecasts, the objective is to accurately predict how specific stocks will perform as the market moves in a given direction. Creating an informed forecast makes it possible for investors to identify which stock options to purchase, how long to hold onto them, and when to sell them. As a result, the investor can buy when the stocks are low, retain ownership while they increase in value and earn a return, then sell them just before they begin to decrease in value once again.
Housing market forecasts work in much the same manner. Speculators will assess the potential for a given housing market, essentially looking at whether the area is likely to see an appreciation in the average value of each home in the community, or if various factors will cause the real estate to decrease in value over time. Accurately assessing or forecasting the market makes it possible to purchase property before it begins to appreciate in value, then sell it at a profit after it peaks but before the value begins to sink once again.
With an insurance market forecast, the focus is to minimize the potential for loss by setting standards or qualifications that help to eliminate risk. For example, a company offering home insurance in an area that is prone to the incidence of tornadoes may choose to offer wind damage protection, but will offer that coverage at a higher premium as well as place limits on the amount of coverage that is available. In years where weather conditions indicate little chance for the development of tornadoes, the company will perform very well. Even in years when there are a number of tornadoes and more claims to process, the insurance company is reasonably protected from paying out huge amounts on the claims, and can remain a viable company that can pay claims quickly without experiencing a cash flow problem.
All forms of market forecasts must be based on as many hard facts as possible. Still, even the best forecast is nothing more than an educated guess. There is always the potential for unforeseen factors to develop that impact the accuracy of the projected outcome. For this reason, it is not unusual for companies and investors to engage in market forecasting on a continual basis, always double-checking the projections of the last forecast against any new developments.