Market Timing: You need to be right 70%+ of the time to break even.

Market Timing:

You need to be right 70%+ of the time to break even.  Market timing skills are vastly overstated.  Various indicators may tell you that the market is over-valued but it does not tell you when the correction will occur.

You can always find under-valued stocks in an over-priced market.  PEs tend to revert to 16 but lower interest rates allow for much higher PEs.  There is a positive relationship between GDP growth and stock returns in any single year but it does not predict returns for the following year.

Increases in Interest rates leads to higher Cost of Equity and lower PEs.  Greater willingness to take risk leads to a higher Risk Premium for equity and higher PEs.  An increase in expected Earnings Growth leads to a higher Market PE.

• If markets are over-valued, you could switch from Growth to Value. 
• If a market increase based on real economic growth is expected, then you may switch into cyclicals. 
• If interest rates go up causing the market to drop, switch out of financials into consumer products. 
• N.B.  The market will bottom out and peak before the economy e.g. invest in cyclicals when the economy enters a recession then shift into industrials and energy as the economy improves. 
• Contrarians may invest in sectors that delivered the worst performance in previous periods.

Professional attempts at market timing have generally failed.