Stock Market Forecast February 2016 Through July 2016: Above Average Gains

February 2016:  U.S. stock market returns well above average
March 2016: U.S. stock market returns well above average
February 2016 through July 2016: Above average gains (roughly 9%, 85% chance for break even)


Last month the short term forecast from my forecasting model proved to be dead wrong. Looks like I have some explaining to do.

The prediction was strongly positive, but the U.S. stock market suffered it's worst January performance EVER.  So, what does that mean?  Is the model junk? Or is something else going on?

My models focus on a small number of key measures of the economy that have proven over the past several decades to be leading indicators for the broad U.S. stock market.  Together these factors forecast about one-third of the actual variation in the market over 6 month periods. However, that also means that about 2/3 of 6-month market variations are not predicted by my models. The goal here is not to be accurate, but rather to foretell the most likely general direction of the broad stock market

If the model is to be believed, the U.S. stock market should be heading upward fairly soon.

The chart below shows a multi-year plot of the S&P 500 index with buy/hold recommendations from the model in green. The current forecast is positive.

(Click on image to enlarge.)

The next chart displays actual 6-month changes in the stock market (blue) and predicted 6-month changes (red).  In the most recently completed periods, the market has performed significantly worse than expected. Note that in previous downturns the market has routinely performed worse than expected.

(Click on image to enlarge.)