In Week 3 of February 2017, we closed out our five-week long prediction of the range into which the S&P 500 would close on each trading day from January 5, 2017, through February 14, 2017. The final results are presented in the following chart.
This is second time that we've attempted the feat with our "connect the dots" approach for coping with the periods where we know in advance that the accuracy of our standard forecasting model will be negatively impacted by the echo effect of past volatility, which arises as a result of our model's use of historic stock prices as the base reference points from which we project future stock prices. As with that previous attempt, stock prices generally fell within our specifically projected range (actually, this time they all fell entirely within the predicted range, whereas back in 2016-Q4, they dropped just outside our projected range on two trading days during that previous prediction period).
It will be another couple of weeks before the echoes of past volatility will once again prompt us to attempt another override prediction, but until then, our standard model's forecast will stand - to read that forecast in the chart above, you just need to determine how far forward in time investors are looking as they go about making their current day investment decisions, then identify the range that coincides with that point on the investment horizon.
As best as we can tell right now, they're focusing on either 2017-Q1 or 2017-Q2, for which our dividend futures-based forecasting model doesn't make much distinction. That observation is based in part on the market-driving news headlines that came out during Week 3 of February 2017.Monday, February 13, 2017
- Oil pulls back in post-settlement trade as U.S. stockpiles rise
- Fed official wants to trim, maybe sell, bonds this year
- The "Fed official" is Jeffrey Lacker, who's anxious to begin what might be called "quantitative tightening."
- Fed on course to raise interest rates at an upcoming meeting: Yellen
- If we go by our dividend futures-based model of how stock prices work, the Fed can get away with hiking short-term interest rates at its meetings in both March 2017 and June 2017 without significantly affecting stock prices, seeing as the expectations for the change in the growth rate for dividends per share in 2017-Q1 and 2017-Q2 are nearly identical. If, however, the Fed's actions cause investors to shift their focus to either 2017-Q3 or 2017-Q4, stock prices will deviate from their current projected trajectory - downward in the case of 2017-Q3 and upward in the case of 2017-Q4.
- Meanwhile, for their part, other Fed officials covered the full range of hiking options that they are now considering in the rest of the day's headlines dealing with the specific timing of future rate hikes.
- Wall Street hits record, dollar climbs after Yellen remarks
- U.S. industrial output falls as warm weather curbs heating demand
- Fed's Rosengren sees 'at least' three rate hikes per year
- Fed's Harker sees three interest-rate hikes appropriate for 2017
- Fed aims to hike rates, based on more growth and fiscal stimulus: Dudley
- Wall Street rises further into uncharted territory
- Stock markets are doing so much winning, investors are thinking Nasdaq 6,000
- Fed accommodative and moving on right path, Fischer says: Bloomberg
- Oil down 1 percent despite news OPEC could extend output cut
- Wall Street rally loses steam as banks and energy weigh
- Dow Jones barely notches sixth straight record high close
- Oil steady, but down for the week as glut worries face OPEC cuts
- World stocks edge lower; Wall Street at record