In March 2014, I predicted the stock market in US would go up by the end of the 2014. I had created  a formula  to predict the stock market using statistical analysis based on certain factors impacting the disposable income of the masses.

Disposable income is the fuel of demand for new products and services and directly impacts the stock market. For nearly a decade, I have been able to accurately (and publicly) predict the stock market, using the factors impacting disposable income, year after year.

So, here is my assessment of these factors for 2015:

Wages:  US economy is improving, the outsourcing of US jobs is still within control, and the government has been pushing to increase the minimum wages.  Though there are differences between the President and the Congress, with these conditions, US wages can go up by  5% this year

CPI: With a stronger dollar compared to emerging market currencies, the CPI that is impacted by our import costs should be at most 2%.

     CPI % increase during the last few years

Home Prices:  The US housing market recovered a few years back and with low interest rates, home prices should be going up, but at lower rates than previous years.  An increase in home prices from these levels give people a cause of concern. I would use a below 5% increase in home prices this year as an indicator. (Data below from ycharts.com)

Gas Prices: Gas prices have started moving higher from the low levels.  With high chances of conflict in Ukraine and Middle East, the gas prices could actually rise another around 20% to 30% from current levels.

   (based on average prices from GasBuddy.com)

Ten Year Treasury Yield:  The ten year treasury yield is at historically low levels. Compared to an average of 2.35 in 2013, it was 2.54 in 2014 (using monthly data of 10 year yields from http://www.federalreserve.gov/releases/h15/data.htm)

As the economy is improving it, there is pressure on the Fed to increase the yield.

The impact of a Conflict in Middle East or Ukraine: There are hints from the government that US forces might be involved in a war with ISIS. Usually, government spending increases during a war and it improves the US economy. We hope that a conflict with Russia over Ukraine would be avoided.

The formula I created and used in my last article was:

S&P increase = 20.2 + 3.4* percent increase in Wages -3.4 * percent increase in CPI -0.8 * percent increase in Home prices - 0.5* percent increase in gas prices in first 4 months of the year - 1.4 *(percent increase in home prices * percent increase in ten year yield ) -7.4 *(percent increase in ten year treasury yield * percent increase in ten year treasury yield )

Prediction for S&P for 2015:

While wages are going up, other factors discussed above are going to negatively impact disposable income of the masses compared to the beginning of the year.

The reader may plug and play with different numbers in the formula discussed above. The numbers I chose in the formula give me between -3% and 11%, based on whether the interest rates increase by 1% or do not increase at all.

The Fed has been reluctant to increase the interest rates so far, and with a strong dollar, it may not increase the interest rates this year, so the market would go higher by the end of year.