January 2016: U.S. stock market returns well above average
February 2016: U.S. stock market returns well above average
January 2016 through June 2016: Above average gains (roughly 7%, 80% chance for break even)
I have more-than-normal confidence in this month's forecast. My short term (1 to 2 month) stock market forecasting models have been anticipating the timing of market shifts pretty well for the past couple of years. The most recent call for a change in market direction (Buy) was made at the end of August. The forecast was matched by a market turn around starting in September that now has produced a gain of roughly 7%.
Looking forward, the short term models remain quite bullish for the first months of 2016. While my longer term models are already starting to worry a bit about market slow downs in May and June, the short term models are optimistic.
The buy/hold calls of the short term model (green) and the sell/avoid calls(red) for the past two years are shown in the chart below. The model turned green at the start of September and the market has risen about 7% since then. For January the model remains bullish. It suggests "Buy/Hold".
(Click on image to enlarge.)
Let's shift to the longer 6 month forecast. For the past year or so the stock market generally has been following the same course that my 6 month macro economic models had predicted six months months in advance. On the whole, however, the stock market has come in somewhat below my econometric models' expectations. Last July, for example, the model expected below average gains for the second half of 2015, but the actual result in the 6 months since then was significantly worse, a loss of about 7%. I am not too concerned about this difference -- as you can see in the chart below, it is more the rule rather than the exception that actual market performance is more extreme than my models had predicted.
(Click on image to enlarge)
Happy New Year!
