The S&P 500 Rebounds To New Record High As Heightened Volatility Confirmed

Given all the issues that are dominating the news, would you have guessed the S&P 500 (SPX) would reach a new record high?

The index closed at a record high of 4,549.78 on Thursday, 21 October 2021, which puts the trajectory of the index into the upper half of the latest red zone forecast range:

Alternative Futures - S&P 500 - 2021Q3 - Standard Model (m=-2.5 from 16 June 2021) - Snapshot on 22 Oct 2021

Sharp-eyed readers will catch that the trajectory of the range has itself shifted upward, which is a result of the 'dynamic' method we use to set it. When we bridge across periods where the echoes of past volatility in stock prices affect the dividend futures-based model's projections, the past end of the range is fixed while the future end 'floats' with changes in expectations.

For the chart, the rising expectations for the future now means parts of the S&P 500's actual trajectory that were once within the red zone forecast range now fall outside of it. That's visible by design in this period because we set the total width of this forecast range to be plus-or-minus three percent of the historic typical level of volatility for stock prices.

Under typical volatility levels, the trajectory of the index should generally fall well within that statistically-determined range. But as the chart visually confirms, the market is experiencing greater than typical levels of volatility.

For us, what that means is that when we get around to projecting the S&P 500's future trajectory for 2021-Q4, we'll need to generate a new red zone forecast, since today's stock prices will become the base reference points from which we project the future for the index in that period. The echoes of today's volatility will affect the accuracy of the dividend futures-based model's projections a year from now.

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