Wednesday, October 4, 2017

Coming 6 months slightly better than average for stocks

October, 2017 expected gains 1.8%.
October, 2017 through March, 2018: Probable 5 percent gain.

The consensus of my forecasting models is that U.S. stock market will rise over the coming half year.  The likelihood of at least breaking even is about 97% -- That is significantly better than the long term market track record of breaking even 74% over all 6 month periods since 1984.  The projected 6 month market gain is about 5%. That's nice, but only slightly better than the long tern average gain over any 6 month period of 4.8%.

The models' forecast of very strong gains in the coming month (1.8%) is unusually positive.

The wild cards, however, are any changes to the U.S. tax code which may get pushed through the Republican-majority Congress.  These models cannot figure what, if any, positive or negative impacts tax changes could mean for business.  Passing major tax law changes isn't easy. The last major restructuring of tax law occurred in 1986.

(Click on image to enlarge.)

Without any major positive or negative catalyst, my models expect the stock market to just keep chugging along. Financial markets are generally calm. We are moving into the winter months which have historically been better for the market than summer months. Recession is unlikely soon.  Interest rates remain historically low. The Federal Reserve intends to raise interest rates only very, very slowly. Inflation is still steady and low.  All of these are positives for the stock market.  But, there is very little reason to expect any big jump in stock prices, as valuations are lofty.


2 comments:

  1. Hi Tom

    Always waiting for your new forecasts! However, it's all up and up..again..and so long..and the true saying is what goes up has to come down..eventually. Only a few weeks/months ago the whole world was talking about the next (immediate) stock market crash..but that seems to be forgotten again..except by a few analysts who just can't let it go..and will tell us eventually..I told you so! What's your view? Did your model predict the last crash and if yes how, what were the signs? Or the signs you did not/could not consider last time..but maybe this time? Thanks! PH

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  2. Hi PH,

    Yes, my model did predict the last crash -- and quite accurately as it turned out. I will work at trying to post clear data on those predictions.

    But ... My personal response to the models' forecasts is a fairly embarrassing story. I first settled on my current model in mid-2007, just before the crash really got underway. The model had no real-time track record to give it any credibility. Over the next months the model started to spit out horribly scary forecasts -- like predictions of a greater than 20% drop in the coming half year! The forecasts were so dire, I just couldn't believe they were real. The model must be loco! So, with my own money I did not act on them. And like so many other people was slammed by the crash. And the model kept giving scary forecasts and the market kept crashing. Then, at the height of the crash in late winter 2009, the model turned hugely positive -- so positive that I shook my head in disbelief. The market chart looked like a falling knife. By this time, though, I started to trust the models, and went bullish with leverage! And am very happy about that decision. Since then the model has been more or less positive on the market.

    The next crash? You'll be getting stock tips from your next door neighbor. Lots of folks will be using margin and leverage to buy more stocks. You probably will see infomercials on day-trading. People will be so confident in the economy that they won't be afraid to change jobs. Inflation will have risen at least some. Usually the Federal Reserve will have raised interest rates by 3 points or so. The broad market will have risen above it's long term trend. Chances of a recession will be rising a bit. And the first scent of some sort of financial panic somewhere in the world will be in the air. Most economic crashes have most of these factors in common. Right now, none of these factors seem to be in play.
    My models only look 6 months into the future, but my personal guess is that a big market crash is a couple of years away -- unless a new chairman of the Fed next winter decides to quickly raise interest rates. If that happens we quickly could be facing something far worse than 1929. Could some other sort of panic occur if we do something really stupid internationally, or some other big 'black swan' flies by? Of course. But, most surprise crashes tend to be short lived -- the Government starts "throwing money out of helicopters", and the economy and stock market rebound.

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