Blog Archives

Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update July 2022

  • The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
  • For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
  • The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
  • The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
  • However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
  • The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).

Posted in 2020, blogs, featured

Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update June 2022

  • The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
  • For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
  • The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
  • The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
  • However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
  • The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).

Posted in 2020, blogs

The iM-Multi-Model Market Timer – Not Your Daddy’s Old Moving Average Crossover System

  • Reliance on a single market timer is risky. The risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data.
  • This model seeks to determine reliable risk-on and risk-off periods for the stock market. When there is no definite signal for risk-on or risk-off then the investment is considered risk-neutral.
  • From 2000 to 2022, switching between ETFs RSP, VGT, SH, TIP, BIV and IEF would have produced an annualized return of 34.2% versus 7.0% for buy and hold SPY.
  • The model is not a binary indicator between risk-on and risk-off and does not rely on leveraged ETFs to produce such high returns.

Posted in 2020, blogs, featured

The Stock Market Is Overpriced, Expect Very Low 10-Year Forward Returns And Zero Real Returns By 2028: Update December 2021

  • The average of S&P 500 for December 2021 was 4675 (previous month 4670). This is 2155 points higher than the long-term trend value of 2520.
  • The current percentage difference of S&P 500 level relative to the current long-term trend level is 85%, a value not exceeded in the recent past since 2001.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 38.4. That is 51% higher than its 35-year moving average (MA35), currently at 25.4.
  • The CAPE-MA35 ratio is 1.51, forecasting a 10-year annualized real return of about 3.8%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
  • The historic long-term trend indicates a 10-year forward real annualized return of only 0.2%, and the current condition of overvaluation suggest zero returns by the end of 2028.

Posted in 2020, blogs, featured

Estimating 10-Year Forward Returns For Stocks With The Shiller CAPE Ratio And The Long-Term Trend – Update January 2020 

  • The average of S&P 500 for Dec-2019 was 3166; that is 852 (i.e. 27% of 3166) above the Jan-2020 level of the long-term trend line.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a relatively high level of 30.1, and the 35-year moving average (MA35) of the CAPE is at 24.2.
  • The CAPE-MA35 ratio is 1.25, forecasting a 10-year annualized real return of 5.9%.
  • Investing in equities for the long-haul when the CAPE-MA35 ratio is below 1.30 should produce reasonable returns, as this level of the ratio does not indicate an abnormally overvalued market.

Posted in 2020, blogs, featured

Is the Stock Market Overvalued? — Update Dec-2015 — Estimating Returns to 2020 and Beyond

  • Based on its historic trend, the stock market appears to be marginally overvalued.
  • The historic trend suggests a probable real gain of about 20% over the next five years.
  • Analysts’ long-term forecasts of stock returns made 4 years ago appear to have been unrealistically low.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio is relatively high (but not extremely high), and a market correction is possible.

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Posted in 2020, blogs, featured, Publish

Is the Stock Market Overvalued? Estimating Returns to 2020 and Beyond

  • Based on its historic trend, the stock market appears to be marginally overvalued.
  • The historic trend suggests a probable real gain of about 20% over the next five years.
  • Analysts’ long-term forecasts of stock returns made 3 years ago appear to have been unrealistically low.
  • The Shiller Cyclically Adjusted Price to Earnings Ratio is relatively high (but not extremely high), and a market correction is possible.

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Posted in 2020, blogs, featured

Estimating Stock Market Returns to 2020 and Beyond: Update July 2014

July 7, 2014   About two years ago evidence was presented that a major bull market may have commenced in 2009. Additionally, a statistical analysis of the historic data of the S&P Composite presented in an Aug-2012 article and Jan-2014 update thereto supported this finding. Since August 2012 the S&P500 has now gained a real 40% to the end of June 2014. So what further gains can we expect, if any?

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Posted in 2020, blogs, featured

Estimating Stock Market Returns to 2020 and Beyond

August 20, 2012     In my recent articles I presented evidence in support of a possible major bull market which may have commenced in 2009. Here I show that another indicator, this time based on a statistical analysis of the historic data of the S&P, signals the same. But how high will the S&P go?

Nobody knows, and the best we can do is to use the historic data (which is from Shiller’s S&P series) to provide us with an estimate. From the real price of the S&P with dividends re-invested (S&P-real) one finds that the best fit line from January 1871 to July 2012 fits the data rather well when both are plotted on a semi-log scale. There is no reason to believe that this long-term trend of S&P-real will not continue into the future. S&P-real and the best fit line together with its prediction band is shown in figure 1.

Posted in 2020

Is the Next Great Bull Market Already Here?

August 14, 2012     In my article Get Ready for the Next Great Bull Market I showed that when the spread between the 50- and 200-month moving average of the S&P forms a trough, it identifies beginnings of major bull markets. Accordingly a new bull market should start at the end of this year. My further analysis, using an adjusted normalized price to earnings ratio, indicates that a major bull market has already started in 2009.

Most of us are familiar with the Shiller cyclically adjusted price to earnings ratio of the S&P. It is the real price of the S&P divided by the average of the real earnings over the preceding 10 years and is identified as P/E10 in Shiller’s S&P data series. The 10 year period seems to have been arbitrarily chosen so as to minimize the effects of business cycles. I am using P/E5 for my analysis, which is the real price of the S&P divided by the average of the real earnings over the preceding 5 years.

Posted in 2020
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