Six Month Forecast for the U.S. Stock Market October, 2014 to April, 2015

There is some current weakness in the stock market as forecasted months ago by my models.  But, looking forward, these macroeconomic models expect the U.S. stock market to perform better than average for the close of 2014 and the winter months of 2015.

What's driving the market?  The story hasn't really changed in the past couple of years:  The U.S. and the rest of the World continue to slowly recover from the Great Recession.  Most economies are still weaker than normal.  Unemployment has gotten better, but is still unacceptable.  Inflation remains low. Gross Domestic Product remains below its long term trend.  Interest rates, forced down by extraordinary measures  put in place by central banks remain near historic lows. Stock valuations are high by several common measures such as Price/Earnings ratios.  There is, however, no correlation I have been able to find between P/E ratios and near term stock market prospects.

As long as the economy remains relatively weak, the stock market probably has reason for optimism.

Here is the current forecast:
Probable market gain from 10/1/2014 to 4/1/2015:  8%  (Average 6 months since 1984: 4.8%)
Probability of at least breaking even :   80%  (Average for all months since 1984: 73%).

(Click on chart to enlarge.)

In the most recent 6 month period (April through September) the model had expected the market, as measured by the Value Line Arithmetic Index, to drop 1%.  The actual 6 month change was -2%.

As you can see from the chart, forecasts for the next couple of months are weak.  After that, hopefully the market will rebound nicely.