Now that the market has closed the books on 2014-Q2, we'll once again set our alternative futures chart for anticipating the future for stock prices into motion, as we'll track how closely the S&P 500 followed what our model predicted for it throughout the second quarter of 2014.
The table below presents our major observations of how well our model worked throughout the second quarter of 2014.
| Observations of S&P 500 Index Value Prediction Model Performance During 2014-Q2 | |
|---|---|
| Date | Comment |
| 31 March 2014 | The first quarter of 2014 ends with investors closely focused on the future quarter of 2014-Q3 in setting current day stock prices. |
| 1 April 2014 | The expectations associated with 2015-Q1, as measured by dividend futures, nose dive. Since investors are focused on 2014-Q3, there is no effect on stock prices. |
| 1 April 2014 to 30 April 2014 | The S&P 500 tracks very closely with our model's predicted trajectory for an investor forward-looking focus fixed on 2014-Q3 throughout the entire month of April 2014. Somebody should tell Burton Malkiel - he says that this kind of thing is impossible. From our standpoint, it is possible, but only under certain conditions that cannot be regularly counted upon, but which turned out to be optimal in April 2014.... |
| 1 May 2014 to 14 May 2014 | The S&P 500 continues to generally track along with our model's predicted trajectory associated with the expectations for 2014-Q3, however we begin to observe larger deviations between our model's forecast and the actual trajectory of stock prices. These deviations are artifacts of our using historic stock price data in our model as the base reference points from which we project its forecast value. |
| 15 May 2014 to 23 May 2014 | The "invisible correction". Yes, it's another one of those historic artifact deviations for our model, but we had fun with it anyway! Dennis Gartman, by the way, has since given up making crash calls.... |
| 23 May 2014 to 29 May 2014 | Stock prices resume tracking along with our model's forecast trajectory for a forward-looking focus on 2014-Q3. |
| 30 May 2014 | The expectations associated with the amount of dividends that will be paid in 2014-Q2 and 2014-Q3 change - here, dividends that investors had expected to be paid out in 2014-Q3 will instead be paid out before the end of 2014-Q2. Concurrent with this change in expectations, investors also begin shifting their forward-looking focus to the more distant future quarter of 2014-Q4 in setting current day stock prices. |
| 3 June 2014 | Investors complete the transition in their shift in focus to the expectations associated with 2014-Q4 in setting current day stock prices. |
| 4 June 2014 to 17 June 2014 | The S&P 500 tracks very closely with our model's predicted trajectory for an investor forward-looking focus fixed on 2014-Q4 throughout this portion of June 2014. |
| 18 June 2014 to 29 June 2014 | We observe the largest deviation between our model's forecast and the actual trajectory of stock prices during this period, which marks the one-year anniversary of the Bernanke Noise Event. Once again, the deviation in our model's forecast is an artifact of our using historic stock price data as the base reference points from which we project its forecast values. |
| 23 June 2014 | With the expiration of the dividend futures contracts for 2014-Q2 on 20 June 2014, we begin to track the alternative future expectations associated with 2015-Q2! |
| 30 June 2014 | The S&P 500 re-converges with our model's forecast for stock prices given an investor focus on the future quarter of 2014-Q4. The earliest our model "predicted" this value for the S&P on this date was 3 June 2014. |
One last general observation: it's pretty remarkable how much the future changes during the course of a quarter (and this was a pretty typical quarter). Beyond that, if you want to know more about how we did this, you really need to read through our archives - our work in developing this forecasting method is very much a work in process, which we would describe as being complex, but not difficult.
Update 9:53 AM EDT: Before we forget, here's the snapshot of what the alternative futures chart for the S&P 500 looks like for 2014-Q3:
We'll discuss the future more in detail in the future....