Stock Market Probably Flat Through November

My econometric models for the U.S. stock market for the second half of 2014 do not expect any significant change between June, 2014 and the end of November, 2014.   The models forecast that the market will perform like a typical summer period -- maybe a minor loss and  somewhat worst than average chance of at least breaking even.  The good news is that this is a slightly better forecast than the models made at the start of May.

The stock market models might as well just suggest that we take a summer vacation and pay attention to other things in life.

Probable market gain from 6/1/2014 to 12/1/2014:   -1%  (Average 6 months since 1984: 4.8%)
Probability of at least breaking even :    50% to 58%  (Average since 1984: 73%).

(click on image to enlarge)

The market models  are a mathematical expectation that the U.S. stock market will react as it typically does to changing economic conditions.  When the forecasts are drastically off, that's a strong sign that something else -- perhaps some sort of  'black swan' -- is  moving the market.

Based on the difference between the forecasts and reality for the past half year or so, it doesn't appear than anything strange has been in play.  In the most recent completed 6 month period, the models expected the market to start cooling off.  Back in December the models forecasted a 6% increase for the Value Line Arithmetic Index  by June 1, and the actual performance was a 4% gain. Pretty close.

The market is moving into the summer months making it probable that the market will weaken mildly.

May 2014 Forecast -- A small step down

The summer months are here and the forecasting model expects the U.S. stock market to perform distinctly below average, declining slightly from May through October 2014.

Probable market gain from 5/1/2014 to 11/1/2014:    -3%  (Average since 1984: 4.8%)
Probability of at least breaking even :    46% to 57%  ( Average since 1984: 73%).

(Click on image to enlarge.)

For the most recent completed forecasting period, September through April, the model did well. It had forecasted an 8% gain in the market (measured via the Value Line Arithmetic Index) while the actual gain was 6%.  For the past year the market has generally turned in better than forecasted gains.

Hopefully that strong relative market performance will continue.  Unfortunately, in the past few months the market has stalled as the model had expected.  The overall market has been flat, but the key technology and cyclic sectors have turned south.