The S&P 500 Rebounds On Disappointing Jobs Report

As we mentioned several weeks ago however, it became clear investors were holding their forward-looking focus on 2020-Q2 rather than shifting it. In the following animated chart, we compare what our results were during the eleven week period of the redzone forecast range, and what our results would have been if we had assumed investors would keep their attention only on 2021-Q2 instead:

(Click on image to enlarge)

Animated Chart: Alternative Futures - S&P 500 – 2021H1 - Standard Model (m=+1.5 from 22 September 2020) - Snapshot on 7 May 2021

This is one of the longest periods in which we've attempted to push the limits of what we can do in forecasting stock prices. With our original assumption that investors would start the redzone forecast period focused on 2021-Q2 and shift that focus to 2021-Q4 by its end, 85% of the S&P 500's daily closing values fall within the range, and 15% fall below it. As our redzone forecasts go, this latest example is one of the worst we've done.

But the alternate hypothesis of investors focusing only on the expectations associated with 2021-Q2 in setting current day stock prices would have seen the S&P 500 fall within its projected range on 95% of the trading days, with just 5% falling below the range.

Looking forward, we think the trajectory of the S&P 500 is likely to undershoot the dividend futures-based model's standard projections in the weeks ahead, mainly because the spector of inflation has been let loose. Even if the Federal Reserve keeps its "super-easy" policies, the longer that situation continues, the more expectations among investors will grow that the Fed will be forced to change course.

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