The S&P 500 Has Peaked for 2011

[MediumTex]

I'm going to go pretty far out on a limb and make the following prediction:

The S&P 500 opened at 1332 today.  I predict it will go no higher for the remainder of the year.

We'll see how this one turns out.

[Lone Wolf]

I really like the prediction threads on this forum because nobody has their net worth (or ego) tied up in being right.  It's down to pure sport.

I'd back you on this one.  I can't see where stock market growth comes from in the near term.  Oil grinding its way up is not going to help either.

But life is full of surprises.

[moda0306]

Speak for yourself Lone Wolf... I don't even really like the PP... my portfolio lies on 10x hedged funds of whatever MT predicts.

[moda0306]

Correction... 10x leveraged.

[Wonk]

I can't say I'm wild about this call, but I'm going to take the "over" on 1332.  I think we'll go to 1400 and stand a good chance of seeing close to 1500 by midyear before a 20%+ correction takes us to between 1000-1500 for the next 5 years.  Worth noting I have no money on this bet.  It's purely a hunch and no more.  I will say that if I see 1500 on the S&P, I'll automatically rebalance my PP stocks back to 25%, no questions asked.

[dualstow]

Oh dear lord, is this where the "medium" in your name comes from?  ;D
I do hope you're wrong, only because the PP is still only about 17% of my total. I've been making a gradual transition, but I started with stocks, not cash. So, I have a lot of money in the market (read: vP ) and very little in gold.

[fnord123]

I'm with Wonk, I think the market will continue higher.

But since I'm in the PP, I don't care all that much

[MediumTex]

Here is a little background on my prediction:

1. Cost cutting was a one-time boost to corporate profits.  People will begin to figure this out as corporate profits begin disappointing the market.

2. Every time we have seen an oil price spike in the last 40 years it has been followed by a recession.

3. Deleveraging continues, which is not good for economic growth.

4. The market is now at a place where people can exit without realizing any losses since the market swoon started in 2008.  It's a good jumping out point.

5. Cyclical bull markets within secular bear markets tend to hit resistance levels when previous highs are approached.  We are in that neighborhood right now.

6. Political instability in the Middle East is rarely good for the U.S. equity markets.  Right now, we are seeing the most political instability since about 1979.

[fnord123]

All very good points. I'd add at least two more:

7. Increased input costs due to higher energy and commodity prices causing  margin compression, which is another argument for the S&P 500 to drop.
 
8. Risk of the new Irish government forcing a haircut on European banks, which in turn could cause contagion.


Against all these arguments I have but one counter-argument:

1. Benny and the Inkjets.  

They will keep doing QE (3, 4, 5, ... N) under the rubric of the Fed's unemployment and new 3rd mandate (equity prices).  The reality is it is just a wealth transfer to the big banks, but no mater what the reason, it will keep happening until unemployment drops below 8%, or the bond market revolts.  And I don't see a bond market revolt for a few years yet.

[moda0306]

Can we quit using the admittedly quite funny "Bennie and the Inkjets" term?  It's one song of EJ's I don't like and it's easily stuck in my head.

[Wonk]

Against all these arguments I have but one counter-argument:

1. Benny and the Inkjets.  

They will keep doing QE (3, 4, 5, ... N) under the rubric of the Fed's unemployment and new 3rd mandate (equity prices).  The reality is it is just a wealth transfer to the big banks, but no mater what the reason, it will keep happening until unemployment drops below 8%, or the bond market revolts.  And I don't see a bond market revolt for a few years yet.

Yes, 100% agreement.  The Bernanke put.  With Greenspan it was interest rates, with Bernanke it's QE.  Not to say equities won't fall, but the floor is much higher than it used to be.

[dualstow]

What's SDS?

[HB Reader]

SDS is a leveraged short S&P ETF.  It's probably a pretty good short-side bet at this point.

Although after watching the stock and gold markets for more years than I care to admit, I have to say that I've never experienced a single day when someone couldn't make an equally articulate bullish or bearish argument.  Some turn out to be amazingly prescient.  Most don't.  Even those that do usually depend on the time frame to which the prediction is retrospectively applied.

That isn't meant to denigrate anyone's views.  It's just very hard to accept that our specific expectations are completely captive to our indvidual knowledge, understanding and experience. 

Sorry for preaching to the PP choir. 

[dualstow]

Ah, yes. There is a thread about it at the bogleheads forum. Definitely not for me.
I would rather put money into the other 3 components of the pp.

[dualstow]

If the S&P really does turn out to have peaked for the year, I'll put cash into the S&P in Dec/Jan.
If it climbs, I'll probably sell off more stocks, bite the bullet on those 4% fees to buy gold, and add long-term treasurys.

I understand why shorting exists, but I'm against the whole principle of it.

[chrikenn]

At 2:16pm EST the S&P 500 was at 1331.  Just one point off of its high.

Prediction awfully close to being an incorrect one 

[MediumTex]

At 2:16pm EST the S&P 500 was at 1331.  Just one point off of its high.

Prediction awfully close to being an incorrect one 

I am anxious to see how the prediction plays out over the rest of the year.  My S&P 500 prediction for last year was that it would fall 10% and it went up 10%, so I was pretty much precisely wrong on that one.

I have done better with my gold and LT bond calls.

When looking back at what went wrong with my S&P 500 call last year, I misunderstood the effects of Fed policies and the extent to which cost cutting would translate into higher corporate earnings for a few quarters.

There is normally a lot more to be learned from failures that successes, so it will be a useful experiment either way.

[chrikenn]

Haha, yeah.  At 2:58PM it breached the 1332 mark (1332.11).

But I will also be interested to see what it does for the rest of the year.  I think your prediction has some good logic behind it, so I tend to agree that the S&P will end the year lower that 1332.  But I would not at all be surprised if it goes well above 1332 before coming back down.

I think your prediction could be considered a success if it does not go much past 1332 and ends the year at or below 1332.

[MediumTex]

From a longer term perspective, S&P 1332 represents a 100% gain off the lows of two years ago.

That's an amazing and historic rally.  I just don't know how much more gas it can possibly have in the tank, given that the underlying economy is still pretty sick.

I'm fascinated to see how it will turn out, though.  Few are talking about it right now, but this rally is one that people will look back on for decades and talk about how amazing it was, sort of like those two similar bear market rallies in the 1930s.

[chrikenn]

From a longer term perspective, S&P 1332 represents a 100% gain off the lows of two years ago.

That's an amazing and historic rally.  I just don't know how much more gas it can possibly have in the tank, given that the underlying economy is still pretty sick.

I'm fascinated to see how it will turn out, though.  Few are talking about it right now, but this rally is one that people will look back on for decades and talk about how amazing it was, sort of like those two similar bear market rallies in the 1930s.

Yeah.  I'm just really hoping it either continues rallying or at least stays somewhat flat until mid-May.  I'm in the process of converting 50% of my entire portfolio to the PP, and May is when some of my short-term gains become long.  So I'm waiting til May to sell off equities, the proceeds of which will be dumped into treasuries (lump sum) and gold (gradually).

That being said, I wouldn't mind if gold had several more days like today between now and May, and then maybe I would just lump sum into gold, as well 

[moda0306]

I love how all of the "new normal" talk by pundits was just that.  Not that I believe stocks are fairly priced, but these pundits are like radio football commentators... they'll say anything to fill dead air.

[MediumTex]

I love how all of the "new normal" talk by pundits was just that.  Not that I believe stocks are fairly priced, but these pundits are like radio football commentators... they'll say anything to fill dead air.

There is nothing normal about a 100% stock rally in 24 months against a backdrop of 9% unemployment.  Suggesting there is anything normal about that is weird.

[moda0306]

MT,

I know... the "new normal" was supposed to be 4% annual stock returns.

[Reub]

I predicted 1475 on the S&P on BH's at the beginning of January and I am sticking with it.

[fnord123]

There is nothing normal about a 100% stock rally in 24 months against a backdrop of 9% unemployment.  Suggesting there is anything normal about that is weird.

Playing devil's advocate here...

Now that we have smart people like Obama, Geithner and the Bernanke on the case, it makes perfect sense that we have a fantastic recovery.  They are the most competent people for the most powerful economic policy jobs in existance.  Just think how great things will be after six more years of these Masters of the Universe!

Of course, if things turn south again, it also tells us something about these three...