Click on each image below for a selection of SP500 constituent stock forecasts and a table of factors for each forecast. The factor table includes the top 4 variables for each forecast. Variable names can be looked up on quandl.com if you want to analyze in more detail what is driving each projection model. Next week I plan to release a new 'Macro' panel of forecasts that includes projections for gold, silver, the SP500, FTSE, DAX, Nikkei, oil, interest rates, and the USD index. Stay tuned ...

July 2016 - 12 Month S&P 500 Forecast

Below is the latest (simple) using only Federal Reserve macroeconomic indices and commodity futures data. The general forecast trend is similar to February's forecast (see previous post below) though the overall S&P level is 10%-15% higher. After approaching 2300 in September, weakness is projected to emerge as we get closer to the election and should continue until the end of the year. The S&P 500 is projected to continue to increase due to monetary policy and favorable sentiment phenomena, despite global macro and political risks gaining momentum.

The major factors include (cross validation error is ~11%, with an R squared of 95%):

*Real M2 Money Supply (increasing, momentum slowing)

*M1 Money Supply - 15 month rate of change (slowly increasing though trajectory is uncertain)

*Manufacturing Employment (declining)

*Appreciation/Depreciation of Commercial Bank Debt Securities (still increasing)

Latest 12 Month Sector ETF Forecasts

Below are the latest sector ETF forecasts for March 2016 through March of 2017. Each forecast was generated with a unique set of independent factors and relies on fundamental economic data. Utilities and Industrials are expected to remain weak over the next year though Materials and Financials may provide outperforming returns. Forecasts for XLK and XLE are still in development and could be significantly revised when new projections are updated in April/May. Backtested results are still forthcoming though preliminary tests suggest that relying on these forecasts (starting in 2011) would have been a very profitable strategy, and in some cases would have generated 2x-3x+ returns over a buy and hold strategy.

Latest SP500 Forecast

Below is the latest 12 month S&P 500 Forecast (as per 2/21/2016). The same type of modeling approach (as was used for the Dow constituents) was also utilized here. The basic outlook is that the S&P will rally until the summer and experience extended weakness as we near election season and the end of the fourth quarter. Key inputs to this forecast include the slope of the yield curve, trends in industrial production, market sentiment, and a selection of employment indices. Most of the indicator factors have correlations with leading 12 month returns that exceed 60%. The mean absolute error of the system of models is ~5.8%, as the average of cross-validation (7-fold) errors.

Forecasts, Selected Dow 30 Constituents

Below is the first entry in a likely long enduring series of security specific forecasts that I will be generating for the Dow constituents and ultimately for all S&P 500 candidates. The underlying forecasts were generated using a proprietary series of algorithms built in R that, through a series of cross validation tests, select an optimal array of factors that feed into a number of final models (multiple regression, neural network, logistic regression, etc). 7 cross validation 'folds' were used and a final hold out sample was utilized to confirm and backtest results. In future posts I will publish the results of the backtest model and provide context on the top 5 factors that feed into each forecast model. Each forecast is generally based on 15 indicators that all vary from security to security.

As you can see, some Dow constituents are projected to increase over the next year though there are a few outliers. Specifically, energy company share prices should improve as market sentiment shifts and banking stocks the same as investors react to the new interest rate/money supply paradigm.

Simply click the image below to see specific detail on the constituent forecasts. If you would like the underlying data feel free to message me or run the image through an OCR converter...

Day One: Frankfurt, Germany

Proceeding earlier than expected, the 767 hit the tarmac at approximately 8:10 am, and proceeded for arrival before the scheduled gate time of 8:30 am. On the other hand,a slight delay occurred as the Frankfurt airport was exceptionally busy handling the way fare of many European fliers as well as directing incoming overnight flights. Surprisingly, immigration was very quick and the attending officers were very polite. Within the next 30 minutes luggage was claimed and the hotel-destined bus was boarded. To the author's knowledge no one was left behind although there have been rumors of a close call. The dreadful fear hanging overhead of missing the bus must have worked its magic this time around-- although we'll have to keep our fingers crossed... Once at the hotel, time is spent checking in; however, only a few students are given the good news that their room is ready. To pass the time, the group was eager to leave home base and visit the surrounding area. As disclosed by a timely twitter post, a group of three ran alongside the Main river in order to stretch out now largely atrophied muscles and to get a better view of the land. One can only begin to surmise the absurdity of this particular outing. Many of us headed towards 'old town' and converged onto the promenade. Key sights included several H&M and Zara stores which helped refresh our strategy chops. A few hundred meters off of the retail promenade were a few open patio pubs. One in particular- Frankfurt's Corner Bar, proved to be an enjoyable resting spot. From the patio one could watch the mix of bankers and other professionals hurriedly march by. The German passerby's closely resembled that of their American counterparts although attire was noticeably more drab. Ultimately, by afternoon the 24+ hour day had taken its toll on some and required immediate surrendering to rest. Regardless, GLP Europe continued unrestrained and remained focused on realizing the best that Frankfurt had to offer this day.

We Survived the Blitzkrieg

At the end of the week the group began the day at Deutsche Boerse and finished at the ECB. The German stock exchange was a non-trivial distance from the Hotel of which we had to cover by foot in about 15 minutes. Upon arriving at DB we were asked to pass a security screening which was less comprehensive than what one would see preceding an airport terminal. A 50 minute lecture commence thereafter which was accompanied by a substantial ebb and flow of Q&A; both from students as well as via the presenter. After this we were shown the trading floor from the above observation deck. Many speculated as to whether the trade technicians away from sight were working diligently or rather playing the latest version of Angry Birds on one of their multi-panel workstations. At roughly noon we split for lunch. Most stayed in the immediate area and enjoyed lunch at one of the many nearby restaurants; however, some returned to the hotel to rest. Across from the ECB was an Indian restaurant. Generally, I'm told the prices here were unjustifiably high as the food quality did not hold a candle to what could be experienced at even low-tier equivalents in Dallas. Post-lunch we were herded into a security line at the ECB. In contrast to D-B, the security screening process was higher. Several unlucky students were subjected to a nice frisking by a very affectionate guard. Names will not be disclosed here. The ECB event included two lectures. The first presentation was intended to convey a high level view of the history of the bank, EU, and provide insights into the bank's decision making process. Following this a research staff member provided an overview of key macroeconomic indicators and discussed his expectations about the next year in terms of inflation rates, bond yields, and GDP growth. Sensing weakness in the lecturer's thesis, the MBA's did not forebear from asking tough questions. After this lecture and the following Q&A, one was left wondering whether the bank was correct in its view of expected macro economic outcomes. That evening the group convened at assorted restaurants and venues near the hotel to unwind from the day. Recommended fare included O'Reilly's Irish and the soon to be updated 'New Living Room' perched alongside the river. At the latter the schnitzel was savory- and many discovered the German delicacy of cranberry jam atop a fresh field green salad.