This solid market predictor sees S&P 500 up 10% by April 2017 By Mark Hulbert
* November 4, 2016
The latest six-month forecast from Sam Eisenstadt
The S&P 500 at the end of April 2017 will be trading between 2,270 and 2,310 — between 8% and 10% higher than it now stands.
Before I tell you which model is so upbeat, let me add that, at the end of this past April, it predicted the S&P 500 SPX, -0.44% would be at 2,200 on Oct. 31. If this forecast had been on target, the S&P 500 would have gained 6.5%. As fate would have it, it gained 2.9%.
Was that six-months-ago forecast accurate enough to justify paying attention to the model’s current projection? Your answer tells us much about whether you have realistic investment expectations.
The model I am referring to was developed by Samuel Eisenstadt, the former research director at Value Line Inc. Though he retired in 2009 after 63 years at that firm, he continues in retirement to update and refine a complex econometric model that generates six-month forecasts for the broad U.S. market.
Given the wide range of possible paths the stock market could have taken over the six months through the end of October, missing the actual gain by just 3.6 percentage points has to be judged an impressive success — especially given the market climate at the end of last April.
The final days of April marked the beginning of the six-month unfavorable period for the stock market. Many followers of this seasonal pattern — which goes by the name of “Sell In May and Go Away” — were projecting big declines over the summer. Eisenstadt’s model, in contrast, expected a modest gain, and that’s exactly what happened.
This context is important because precision is unattainable when it comes to stock market projections. Those of you who expect such accuracy will inevitably be disappointed — and will undoubtedly lose money by betting too aggressively.
Eisenstadt’s model doesn’t always come as close as it did over the last six months. But its record has met rigorous tests of statistical significance. In an email, he reported that his model is able to explain 26% of the variation in six-month changes in the S&P 500 since the early 1950. Almost all other models you hear or read about have success rates that are far lower — if they are even statistically significant in the first place.
To be sure, as Eisenstadt acknowledged, the current market environment is an especially difficult one for stock market forecasts, given the uncertainty around Tuesday’s election’s outcome and the timing and extent of Federal Reserve’s rate increases.
Still, it is good news that, upon weighing all factors that he has found in the past to have predictive power, Eisenstadt’s model sees a higher stock market over the next six months.
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