Unexpectedly Intriguing!
May 18, 2009

At present, it appears that we won't hit our average target range of 925 to 945 for the S&P 500 in May 2009, despite having come very close to moving into that range on 8 May 2009. What we find interesting about that is that stock prices, instead of tracking that more recent forecast would instead appear to be pacing an older forecast we had projected for stock prices through the second quarter of 2009.

In fact, if we go back to the base level of stock prices that we used to originally anticipate the level of stock prices in April 2009, then apply the most recent dividend futures data (as of 18 May 2009) with our method of projecting future stock prices, we find that average stock prices would range between 909 and 927.

So what happened? Why would stock prices nearly rise to our newer forecast level, then fall to a level that would be consistent with an earlier projection?

We see two main possibilities:

  1. Our original forecast for the second quarter of 2009 was correct. This would mean that investors do indeed apply the expected change they foresee in the growth rate for quarterly dividends per share over the course of an entire quarter.

  2. Investors did indeed shift the base from which they set stock prices, but only did so briefly. This created the surge in stock prices in early May nearly to the level we projected in our newer forecast. As negative news regarding the expected future growth rate of dividends per share was released during the month, investors reacted in part by shifting back to the older base level for setting stock prices that applied throughout April 2009.

It will take a while to see which alternative will more closely agree with how stock prices will change in through the end of the current quarter. If the first option holds, then we might expect stock prices to generally rise on a fairly steady track until investors shift their focus from the future point in time they appear to currently be holding fixed.

If the second option holds, then it's entirely possible that with the absence of further negative news affecting what investors expect for the future level of dividends per share, stock prices could well surge, rising rapidly in a very short period of time, should investors reset the stock price base from which they project future stock prices back to where they would appear to have in early May.

That said, we do not anticipate that stock prices will rise enough by the end of the May 2009 to reach the target level we had specifically forecast for the month, so we're going to score this forecast as a miss (our first for 2009!)

Plus-Minus in 2009

Where does this put us in terms of our Plus-Minus statistic for 2009? Here's our track record through this point of the year (the letters correlate with those in the chart of stock prices at the top of this post!):

Plus-Minus for S&P 500 Predictions Through 15 May 2009
ID Date of Prediction Date Prediction Realized Post (and Prediction) +/- Score
A 20 November 2008 20 January 2009 You Can't Say You Weren't Warned +1
B 3 March 2009 9 March 2009 Answer: Lower (650-680) +1
C 16 March 2009 23 March 2009 A Shift in Focus (815-840) +1
D 2 April 2009 16 April 2009 How Stock Prices Work (860-890) +1
E 14 April 2009 15 April 2009 Sticking Our Necks Out (Up on 15 April 2009) +1
F 20 April 2009 21 April 2009 A Noisy Opportunity? (Up from 832.39) +1
G 4 May 2009 8 May 2009 Building from a New Base (935-955, later lowered to 925-945) -1

Our net plus-minus statistic for stock market predictions in 2009 is currently +5 (seven predictions, six correct, one incorrect).

Update 2:43 PM PDT: Okay, make that plus-minus statistic +6. If you go by today's stock market close of 909.71, we just hit the low end of the target range we identified in this post. At the time we posted, the S&P 500 was at 898.80. And if you took our advice from the post we scored as a miss (-1) in the above table, you're probably smiling right about now....

Update 4:25 PM PDT: Added "should investors reset the stock price base from which they project future stock prices back to where they would appear to have in early May" to the eighth paragraph. We accidentally omitted this section from our original post.

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