For a recent analysis of the national outlook see here.

S & P 500


The following chart shows the weekly closing price of the S & P 500 beginning the first Friday in January 2019 thru the current date.  What a blast last week.  The long increase in the S & P first underway during Obama’s administration is brought to an end by Trump.  Is any collapse more dramatic than the following?


The end of the decline is unknown in both its level and duration.

If the above chart were extended backward to earlier dates, it would show a significant upward trend with some downward blips (as seen for the short periods May – June 2019, August – September 2019 and mid-Jan – Feb 2020).  An examination of the annual percentage increase in the S & P 500 during the past 5 – 10 years would reveal the increase to be 10 – 12% per compounding period.  Investors following a passive investment strategy, i.e. buying an index fund, would earn a return exceeding the return earned following an active investment strategy with significantly lower risk as measured by the standard deviation of the annual returns.

The following table shows the summary of the actual and forecasts for the weekly change in the S & P 500 for 2020.


The actual change for the year = -562.65.  The market collapsed the week ending 28 February. This week’s ending resulted in a slight increase, but during the week the market was wild. The discussion in the trade press attributes blip to the heightening  virus scare in China and the Presidents slow reaction along with the continuing trade war and the general outlook for the world’s economies . We’ll see in the next few weeks.


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for 2019.


The sum of the actual forecasts to date for 2019 = 359.72.  The total percentage change from the first to the last Friday in the year = 27.97%.


(NEW) The market increased from the first Friday in January thru the first Friday in April.  Then the market was sideways with a significant increase in the variation (measured by the variance or standard deviation) thru the first week in September.  This side-wise movement reflected the market’s focus on the Trump-China tariff negotiations.  Since the first week of September, the outlook for some resolution of the tariff negotiations increased.  The market resumed its upward climb.

The outlook for 2020 is, again, uncertain.  The market will continue to be responsive to the resolution of the tariff impasse, expectation about corporate earnings, the final resolution of Brexit between the UK and EU, the overriding talk in the trade press about (the need) for a market adjustment, the response by the FED and any additional stimulus provided by fiscal policy. (END)


Investors always seek signals indicating the future level of the S & P index. Some of the traditional indicators include the price / earnings ratio, future earnings, international trade and many others.  The following chart offers a graphic picture of a signal.


(NEW) The signal offers a early warning that the market is beginning a decline.  The week ending 31 January the signal indicated a potential decline. The two following weeks the signal returned to normal.  The signal on 6 March followed on 13 March exhibited the largest downward thrust in over two years.  The market is clearly declining. The most likely scenario is for the virus to continue to expand in the U.S. and worldwide.

The economic impact will be first evident on the March employment.  The impact on GDP may be evident in the first quarter but clearly evident when the second quarter GDP estimates are released in late July.

Expect the market to continue to whipsaw until the impact of the virus peaks and begins its decline. (END)

Using any Friday’s closing of the S & P index, a statistical forecast is calculated for the close on the next Friday.  A 95% confidence interval is calculated around the next Friday’s forecast. The interval is shown in the above chart as ‘Lower’ and ‘Upper.’

When the next Friday’s actual close occurs, it appears on the chart as ‘Actual.’  So the chart shows the forecast interval and the actual.

The signal is the actual close compared to the forecast interval (Upper and Lower) and is shown in the chart as the yellow line ‘Signal.’  Note on 9 February 2018 the actual close  was below the ‘Lower’ forecast signalling a change in direction of the S & P index. The up and down movement in the ‘Signal’ continued until 13 April when the actual Friday close returned to close between the ‘Lower’ and ‘Upper.’  The upward trend in the weekly closing price of the index resumed until 19 October.

On 19 October 2018 the actual close fell below the forecast ‘Lower.’  The upward trend in the S & P index stopped to be replaced by a declining trend until 2 January 2019. Beginning on 2 January 2019, the upward trend resumes and continues.

How do investors use the signal?  When the ‘Signal’ equals one, then a change in upward direction of the index follows.  Do not buy the S & P index until the ‘Signal’ returns to zero.

Investors can buy the S & P index anytime the signal is zero.

In summary, the ‘Signal’ indicates a period of a ‘market correction’ when there is a pause in the upward momentum.

The signal is below the lower forecast limit for two consecutive weeks. This indicates the upward trend in the market has ceased.


Another slant on the market’s direction uses a measure of uncertainty.


The chart above shows the same time period as the preceding chart showing the ‘Signal.’

The uncertainty index is the difference between the ‘Upper’ and ‘Lower.’  From 5 January 2018 uncertainty slowly drifted up settling around 125.  Then, uncertainty abruptly increased on 11 January 2019. It fluctuated around 275 and slowly drifted down.  The index jumped this week confirming the wild day-to-day fluctuations in the S & P.

The exact cause of the increase in uncertainty is unknown. The increase is most likely the result of a number of factors – Trump, China, Brexit and ….


The following chart shows the weekly closing price of the S & P 500 for 2018


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for the year 2018.


The total of the actual forecasts of -144.56 is not so good. One of the reasons for the negative value is the forecasting algorithm is that it is trend following. One of its characteristics is that the statistical methodology identifies statistically significant deviations from the trend after they occur.  Unknown and unforeseen events will occur in the future, which will affect the underlying trend; but, their effects can only be identified after they occur.

Such unknown effects occurred during 2018.  Most of the effects originate in the White House, i.e., trade wars, brow-beating and name-calling, etc. and the market reacts.


The S&P 500 began the year on 30 December 2016 at 2338.83.  On 29 December 2017 the S&P 500 closed at 2673.61.  The total change in points = 334.71, which is a 14.31% increase.

Forecasting of the weekly closing price of the S & P 500 began for the week ending 23 February 2017.  The chart below shows the weekly actual closing price.


The following table shows the summary of the actual and forecasts and actual and forecast for the weekly change in the S & P 500 for the year 2017.


Last updated on 15 March 2020 using data for the week ending 13 March.

Source: FRED, S&P 500, weekly, aggregation method – end of period, and the author’s calculations.


(NEW) What is clear is that the trade war continues unabated, the FED is doing its best to read the tea-leaves about the effect on GDP from all the variables affecting the U.S. economy, and Trump and the White House refuse to accept any responsibility for the turmoil.

What is clear is that the future path of GDP is uncertain.  The daily and weekly swings in the S & P index reflects the uncertainty.(END)

During Trump’s campaign, he asserted that he alone would undertake policies that would increase the growth rate of GDP to 3 – 4% per year.  His promise included moving jobs back to the U.S., a large increase in infrastructure expenditures, and the promised ‘Wall.’ These promises may come to pass, but in the meantime the actual and expected growth rates are shown below.

The meantime is upon us!  Trump started a trade war that no country can win.  Trump said ‘it is easy to win a trade war.’  The U.S. cannot.

The average growth rate for the four quarters in 2016 = 1.82%.  The growth rate for the four quarters of  2017 is 2.56%.  The growth rate for 2Q2018 = 1.54%.  The forecast for the average growth rate for the four quarters in 2018 is 2.02%.  The historic four quarter moving average of GDP’s growth rate is shown below.  Since 1Q2010 the average growth rate has been 2.27%.



The massive corporate tax cut, expected acceleration in the federal debt and the FED’s response increases the uncertainty about the future GDP growth rate. Most recently Trump has precipitated a trade war with our most valuable allies and China. This trade war is another of his ‘shoot-from-the-hip’ pronouncements not based on sound economic analysis. No party wins a trade war, and the first round followed by the second and third round effects are yet to come.  All effects will be slow (2 – 8) quarters to be reflected in GDP, but the negative effects are certain.

The future GDP growth rates shown below reflect the underlying/historic pattern of GDP.  The effects of the massive tax cut directed towards high income individuals and corporations has dissipated.


(NEW) The graph above reflects the revised GDP released on 19 January.  The revisions include a reduction in the 2Q growth rate from 3.1% to 2%.  The forecasts show a constant growth rate of 2.4% for 2020.  At this time there is no indication that the growth rate will become negative, but the forecasts cannot be good news for individuals and firms making investment decisions. (END)

The Bureau of Economic Analysis releases its first estimate at the end of the month following the end of the quarter (in January) and its second release during the last week at the end of the second month following the end of the quarter (in February).

With all the troubles Trump has instigated, the forecast for GDP growth rates as the November 2020 election approaches cannot be good news.

Now turn to Trump’s continuing attacks on the FED. These attacks originate from two sources.  First, the U.S. economy is softening as evidence by the declines in the forecasts of GDP as data is revised and updated. Trump and his advisors are well aware of these forecasts.  Trump’s refuses to accept responsibility for the second-round effects of his previous decision, so he lashes out.  In this case, the thrust is directed at the FED.  In effect, Trump asserts the FED is the source of the problem, and he bears no responsibility.

The second is the FED’s response to the forecast slowdown.  In the following sections of this posting note the forecasts of the growth rate of payroll employment and inflation.  Both are declining.  If the reader was a member of the FED’s Board of Governors, what would you recommend?

Analysis updated on 15 Januaryy reflecting data thru 3Q2019.

SOURCE: FRED, series – GDPC1


The graph below shows the actual and forecast of the 12 month percent change in CPI.    The actual decline will have some practical lower limit absent a recession.  The FED’s lower target rate is 2%.  The continued decline in prices results in consternation at the FED.

The statistical model includes 25 intervention variables, including two seasonal pulses.  For those who are interested the R² = .9999.

A word of caution:  Trump’s continued harangue about the current trade deficit with China and his imposition of additional tariffs (in the last few days, the White House indicates the latest increase will be moderated) will eventually produce an increase in the CPI.  The impact on the CPI will depend on a host of factors where the magnitude is unknown at this time.  In the end, American consumers will shoulder the price increases.

The forecasts suggest that an increase in inflation is not a threat.   The FED’s actions and printed commentary indicate it is either overly concerned about immediate inflationary pressures or desires to slow the overall economy in an attempt to forestall any future inflation.


The Bureau of Labor Statistics releases the previous months estimate of CPI in the middle of the current month.

Updated on 19 January 2020 using data thru December 2019.



The U.S. unemployment rate continues to flatten at near 3.5%.  The graphic pattern suggest that normal job turnover, along with new hires and layoffs, result in the 3.5% minimum.

The FED has to contend with the small monthly fluctuations in the unemployment rate, expected small increases in inflation and slow increase in wages when it considers another rate increases.  Furthermore, there is continued chatter from the political class (lead by Trump last year )that interest rates should increase to increase the earnings of savers. This argument is most mysterious, since the traditional Keynesian view is that investment decisions are influenced by the spread between the expected rate of return and the interest (cost of funds) rate.


The flat line forecasts of the unemployment rate at 3.5%  suggests the FED will view the outlook as non-treating to the U.S. economy.

The FED is under increasing pressure from Trump. The outlook for the U.S. economy is becoming more questionable every day.  The spread between the U.S. Treasury 10 year constant maturity and the 3-MO bill rate is negative.  This is not a good sign.  The longer the spread is negative the greater the chances that the economy enters a slowdown.


The flat forecast of the unemployment rate reflects the estimated statistical equation that summarizes the historical data. The equation is very simple – stationary using first differences and only one pulse intervention variable. It does not include any AR or MA terms.  The future forecast values are the actual unemployment rate for the previous month.

The effect of the virus is not detectable on the unemployment rate – YET.  However, reported virus infections continue on the upswing, and it is only a question of time before the magnitued and duration of its impact on all the world’s economies can be measured.

Updated on 14 March 2020 using data thru February 2019.

SOURCE: The unemployment rate is calculated to six decimal points using data from FRED, series – CLV16oV and LNS13000000.


The average monthly change in U.S. payroll employment for the 12 months ending December = 176,000.

The month-to-month change in total payroll employment is more of interest and more closely watched that the monthly total.  The following graph shows the actual monthly change from January 2018 thru  December 2019 and the monthly forecasts January – June 2020.

The statistical estimate for 12 month change in January 2020 is 202,000.

The FED watches the monthly change in payroll employment closely.  It, along with the unemployment rate and the forecasts of GDP,  guide the FED in its interest rate decisions.  The following graph shows normal month-to-month changes in payroll employment along with the expected monthly changes during the remaining months thru August 2020.


The FED reduced interest rates on an emergency basis last week in response to the carnoravirus.  Monetary policy, i.e. a reduction in interest rates, will have little effect in the short run. The reduction is insurance.

Updated on 14 March 2020 using monthly data thru February 2020.

SOURCE: FRED, series PAYEMS, seasonally adjusted