Market Outlook: Does Fed Tightening Doom Equities?
Summary
- The S&P 500 is at record-high price levels, with a 5-year climb of +78% interrupted only by a couple of -12% brief, easily recovered, 2015-16 interludes.
- That Index’s SPDR ETF SPY shows Market-maker hedging-implied upside price prospects of +6%, with experienced worst-case price drawdowns of only -2.5% following prior forecasts like today’s.
- In a comprehensive sample of over 2,500 individual stock forecasts, the upside to downside proportions of similarly derived near-term price ranges average 70% up and -30% down.
- Forecasts made by Market-makers the same way, but directly on the index itself are (as usual) more optimistic, with only 20% of the uncertainty to the downside and 80% to the upside.
- Don’t put your money in your mattress, keep it continually and actively working in stocks and ETFs, ones with high odds-on prospects of near-term price gains.
Where are all those doomed stocks?
The ones that the big, smart-money guys are forecasting with more near-term downsides than up? The ones in Figure 1 with Range Indexes [RI] above 50?
Figure 1
(used with permission)
There are at least as many Graham & Dodd value buy candidates at zero RI or below, selling for less than their forecast low extremes.
Doesn’t it seem strange that all that “smart money” either isn’t aware of the catastrophe about to befall the market, despite all the warnings of many past months? Or perhaps they just don’t believe economists, as a principal principle defense.
And this doesn’t seem to be some temporary delusion. Figure 2 shows how the Market-Makers [MMs] have been hedging their bets directly against the S&P 500 index during the past two years.
Figure 2
(Used with permission)
Each of the weekly vertical lines in Figure 2 is a hedging-derived forecast by MMs for coming (not past) price ranges. The heavy dot in each vertical is the index quote at the date of the forecast, splitting the range into upside and downside prospects.
Please notice the similarity of RI skewing to the left in both Figure 1 and in the "thumbnail picture" distribution of the SPX's RIs over the past 5 years.
The rising index prices since the beginning of 2016 have been well supported by rising price range expectations. Nothing appears to suggest a sudden change in prospects, despite what the Fed may say – or do.
Maybe the catastrophe has already happened, but got swallowed up in general economic strength – or in a decision that as long as the price score continues to be kept in US $, it won’t matter.
Conclusion
What’s your guess? (Good as mine.)
Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.
We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided. Our website, blockdesk.com has further information.
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