Entering text into the input field will update the search result below

Yearly S&P 500 Outlook: The Remaining 9 Months Of 2019

Kevin Jacques profile picture
Kevin Jacques


  • C-J's simulation results suggest a 74.6% likelihood the S&P 500 will end 2019 higher than the March close of 2834.40.
  • The median simulation calls for the S&P 500 to increase an additional 7.05% in the last 9 months of the year.
  • C-J also estimates a 14.5% likelihood (1 in 7 chance) the S&P 500 will end 2019 down 5% or more.

But as we cannot predict such external influences very well, the only reliable crystal ball is a probabilistic one. - Benoit Mandelbrot

The C-J Monte Carlo Simulation Model

C-J is a Monte Carlo simulation model used to assess risk in the S&P 500. Traditional stock market models suffer from a number of problems including fat tails, serial correlation, and the failure to account for volatility clustering. The fat-tail problem arises because traditional finance theory uses the normal distribution. For investors, the practical implication of such an approach is that traditional finance theory underestimates (and in some cases significantly underestimates) risk in the market.

C-J uses data on valuation, earnings, and short-term historical patterns in the stock market to correct for the problems noted above. C-J does this by using a series of non-normal conditional distributions. If you have read former Yale mathematician Benoit Mandelbrot’s book (with Richard Hudson), The (Mis)behavior of Markets: A Fractal View of Financial Turbulence, then you should note that C-J is fractal by design. And while the model maintains a fractal nature, because of its design it also maintains statistical properties similar to the behavior of the S&P 500 over the last 60+ years.

The purpose of C-J is not to provide a single point estimate of where the S&P 500 will be at some future point. As investors we don’t see the underlying process generating movements in the market, we only see the outcomes, thus explaining why “expert” predictions are often wrong. As Nassim Taleb has written in Black Swan, “Most models, of course, attempt to be precisely predictive, and not just descriptive in nature. I find this infuriating”. To that end, C-J is intended to be descriptive in nature by providing not only a model that corrects for the problems discussed above, but does so in a probabilistic manner.

This article was written by

Kevin Jacques profile picture
Kevin T. Jacques is a former senior economist with the U.S. Treasury Department in Washington, D.C. During his 14 years with the Treasury Department, he worked on topics including risk measurement and management systems, bank capital regulations, and systemic risk. In the mid-1990's, he served as staff on the President's Working Group in Financial Markets examining systemic risk in the U.S. financial system. In addition, during his time in Washington, Dr. Jacques taught finance in the McDonough School of Business at Georgetown University. Dr. Jacques’ economic and financial commentaries have received hundreds of radio, television and newspaper citations including Bloomberg Financial News, National Public Radio (NPR), PBS television, American Banker, U.S. News & World Report, and others. Currently, he teaches investments at Baldwin Wallace University. He holds a Ph.D. in Economics from Michigan State University.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I own a long position in an S&P 500 Index fund in a retirement account. Disclaimer: This article contains model-based projections that are forward-looking and, as with any quantitative model, are subject to uncertainties and modeling assumptions. The C-J model is intended as a tool to assess risk in the S&P 500, and not as a forecast of the future value of the S&P 500 or any other market. The results of C-J are for informational purposes only. Nothing in this article should be construed as specific investment advice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (9)

Good update, markets are still heading higher
itamarro profile picture
Thank you Kevin! It's always fascinating watching how simulations based on math and history correlate (or not) with "unforeseen" real-world events ... As the fed reverses course, this probability distribution of outcomes seems quite sensible. Very interesting. Thank you for sharing this with us!
do you consider forward estimates in the model?
Kevin Jacques profile picture
Without going into detail, both forward and trailing earnings are used in C-J.

Thanks for reading.

Thank you. For me, the implication is my approach of quarterly rebalancing my long in equities portfolio could be relatively productive.
Kevin Jacques profile picture
Cash, being the conservative, risk oriented person I am I will confess that the December results make me a bit uneasy. My gut reaction is that I'm not sure there is another 7+% upside for the remainder of the year. Time will tell and a lot can change over the next 9 months. Stay tuned.

Thanks for reading.

Market likely will break out 3000 on S&P 500 in April or May ..
Eric Peterson profile picture
Based on what?
Based on the monthly chart and its comparison with 1998 ..monthly chart suggests that market could be just starting a new leg on monthly scale, not topping ..
And 50 MA on Dollar Index monthly chart supports this reading ..economic expanding could have years to go ..
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
SPDR® S&P 500 ETF Trust
Vanguard S&P 500 ETF
ProShares Short S&P500 ETF
ProShares UltraShort S&P500 ETF
iShares Core S&P 500 ETF

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.