Stock market has been stronger than expected

U.S. Stocks stumbled in January, but came roaring back in February. I had forecast a strong 6 month gain of 8% last September, but the market more than doubled on my expectations with a 17% burst!  As far as my models are concerned I'll still call that a win -- the forecast was for the market to go up nicely and it did. The models are not expected to be accurate. The goal here is just to usually anticipate the market's general direction.

The model's forecasts from 3/1/2014 to 9/1/2014  are weak and falling.  The market, of course, will do what it wants.  But, factors that historically have affected the market are weak. Not bad, just anemic.

 Probable market gain from 3/1/2014 to 9/1/2014:    0%  (Average since 1984: 4.8%)
                    Probability of at least breaking even :  58%  ( Average since 1984: 73%).

(click on image to enlarge)

Morningstar.com Market Valuation Graph

Want to know if the U.S. stock market is too high or too low? Here is a free chart you can follow.

With more than a decade of published track record, the Market Valuation Graph at Morningstar.com gives Morningstar's current calculations of  net present value of the stock market -- what their analysts calculate the market is worth today based of expected dividends and growth over the next several years.

Here is the link.  I prefer using the "max" time period setting.
http://www.morningstar.com/market-valuation/market-fair-value-graph.aspx

There are probably worse investment strategies than to respond every couple of years to extremes in the net present value calculations that Morningstar compiles and presents here for a vast universe of stocks and then averages together.  Put another way, be careful if you think the stock market is valued far away from the Morningstar estimates -- their track record has been amazingly good.

The strategy to using this measure is simple: 

Buy more stocks when Morningstar calculates that the market in undervalued by, say, 10% or more.
Sell some stocks when Morningstar views the market as overvalued by, say, 8% or more.

Then be patient.  It is difficult or impossible to predict exactly when the market will turn course, but this graph shows that year-to-year pricing of the stock market tends to revert toward the neutral "fair market value".