Stock Market Forecast May 2016 Through October 2016: Looking bad

May 2016 through October 2016:  Watch out. The six month stock market forecast is bad and the near term forecast is flashing yellow.  Next month the short term forecast will almost certainly turn red. My forecasting models expect the U.S. stock market to fall significantly over the coming half year; and that doesn't factor in the presidential election which is likely to create additional volatility.

The models predict that the stock market will decline about 6 percent from now through the end of October. The probability that the market will decline over the period is high.  The odds that the market will fall by at least 8% at some point over the next six months are high -- about 1 in 4.

As shown in the graph below, the stock market has performed below the expectations of the model for more than a year. If that continues, actual market results in the next six months could be significantly worse than the bleak forecast now given by the model.

(Click on image to enlarge.)

The immediate prospects for the stock market, however, are much less clear and are not as bad as the longer term forecast.  As shown below the short term forecasting model is now flashing a warning.  Based on the current negative 6 month forecast next month the short term forecasting model will probably be flashing a sell signal.

(Click on image to enlarge.)