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 2020 thru the current date.  The market closed on the first Friday in January 2020 at 3234.85 and closed on 31 December at 3756.07.  The percentage increase in the Friday close for the year = 16.11.

The strong recovery began in early April. What was unknown was the duration and extent of the upsurge. The strong upward move continues today.

The turmoil in the Trump reelection campaign resulted in his loss. Now, the market focuses on the expectations of the Biden administration about its economic proposals and actions to control the virus. Success continues. The Biden proposals are being presented to Congress.  All include major increases in expenditures and tax increases to fund the increases.  The Republicans are assuming their usual positions – lower increases in expenditures and no tax increases. Recall that the only economic policies the Republicans support are major tax decreases for high income individuals and corporations all funded by increases in the debt. This policy increases income inequality..


The explanation for the recovery is the cash distributions Congress made to our citizens in the Spring, the expectation of additions funds from the Democratic Congress, and the recovery of the U.S. economy  These funds were either spent or saved with both finding their way back into the banking and financial sector. With interest rates close to zero, the only alternative (except holding cash) is the stock markets and indirectly via mutual funds.

The another recent explanation for the market’s rise is the positive outlook for the U.S. economy. Annualized growth in real GDP was 6.2% in Q1 of 2021 and is expected to increase more in Q2.

The FED recently announced a change in policy towards inflation.  Inflation targets will now be an average over some period instead of a single value.

Consequently, with inflation targets an average and interest rates low for an indefinite period into the future, expect the market to continue on its upswing.  At some point in the future, the price/earnings ratio and the growth rate of corporate earnings will be reflected in the S & P index.

Since both the level and duration are unknown, the market faces uncertainty.  Risk is different from uncertainty.  Risk can be hedged and uncertainty cannot.  An example of hedging a risk is home insurance.  The source of risk is a fire. The purchase of fire insurance provides protection (the hedge) against financial loss resulting from fire damage.

Not so with uncertainty because both the future benefits and costs are both unknown.

The following table shows the summary of the actual and forecasts for the weekly change in the S & P 500 for 2020 – 21.


The market increased  17.55 points last week.  The market is in a period of greater uncertainty as evidenced by its side wise activity since 9 April. The failure of the market to continue its upward pace probably reflects the uncertain outcome of the Biden’s proposals for the stimulus package(s) and budget.  Remember the underlying Republican strategy is to thwart all Democratic proposals instead of pursuing broad ‘public interest’ objectives.   The actual net forecast change from 3 January 2021 to date = 518.46

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.

Note in all cases since January 2018 when the signal =1 the market was declining and when the signal = 0 the market increases.


As long as the actual weekly close is below the lower forecast for two consecutive weeks expect the market’s decline to continue.  When the actual falls between the upper and lower bounds, i.e., the signal = 0, the market is not changing direction.

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 vs. 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 direction of the index follows.  Do not buy the S & P index until the ‘Signal’ returns to zero.  The signal returned to zero on 20 April.

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 and now downward 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.  Uncertainty accelerated rapidly beginning in early April.  The whipsaw trace since early April suggests the market responds the any tidbit of both positive and negative information. Currently, the market seems to only respond to announcements about progress in the distribution of the virus vaccine and the stimulus package.

Note the three periods in the uncertainty index. The first is a slow but stable slight increase from January 2018 to January 2019.  In January 2019 the index shot up from near 130 to 290 followed by a slow decline until January 2020. The sharp decline to 145 in January 2020 followed by a flat period around 145.  Then the virus effect became obvious in late March.

The index increased significantly with large week to week variations. The index is slowly drifting sideways since June around 300. The index almost seems to be a pause before the storm.

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, …. clearly the virus and the lack of the federal government’s response, and now the prospects for the development of a vaccine.


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 13 June 2021 using data for the week ending 11 June.

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


(NEW) What is clear is that forecasting the growth rate of GDP is difficult when the economy exhibits a large deviation from its underlying trend.  This occurred in the second quarter of 2020 as a result of the virus.  The pandemic coupled with irrational comments from Trump, no policy responses to control the spread of the virus from the White House and knee-jerk responses by most of the State’s governors are the basis for questionable forecasts.

The third round of the virus is rapidly declining.  Generally, state governors (TX and FL) cannot resist the pressure from business interests and athletic supporters to reopen at a moments notice.

However, if the public would wear masks anywhere, maintain 6′ distancing and wash their hands, the virus would slowly diminish; but, the public won’t.  Vaccines are rapidly being administered with excellent results. (END)

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. The effect of the recently passed stimulus is included in the forecasts.


(NEW) The graph above reflects the revised GDP.

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

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

The trade press and every forecaster offers their version of what the future holds.  None reflect any pattern in the monumental effects on all the macroeconomic series available.  Hence, all the forecasts are the forecaster’s best guess. The forecast for the 3Q2020 shown below is a guess.  Future forecast of the quarterly GDP will be offered after the historical patterns in the relevant series are established.

Analysis updated on 21 March reflects data thru 4Q2020.

SOURCE: FRED, series – GDPC1


Inflation is not a threat at the present time.  However, speculation abounds about an increase. The trillions of dollars inserted into the economy by Congress and the FED has not resulted in any inflation, so far.  However, …

The graph below shows the actual and forecast of the 12 month percent change in CPI.  Note the forecasts include an increase until May to 3%+ followed by a decline in June 2021. The forecast increase will result in some commentators expressing horror,  an increase in long term interest rates and a general banging-of-pans.


Note in the graph above an increase in the CPI is followed by a decline, another increase and another decline. From January 2017 the trend in the CPI is a decline. The question now is does the increase since April 2020 represent a change in trend or an increase in the amplitude of the month to month fluctuations.

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

Updated on 21 January data thru February 2020.



The U.S. unemployment rate lurched to a peak in April.  It has begun a declined but follows a slow decline thru January and then flattening as the economy slowly returns to normal.


The virus continues to stress the U.S. economy.  Overlaid on the slow recovery is the slow distribution of the vaccine.

Updated on 21 March using data thru February 2021.

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


The 12-month change in payroll employment follows a similar pattern as the unemployment rate. The large change in the April value is followed by some increases thru December.  The prospects for a third round of the virus is well underway and unlikely to be tempered until 5 – 8 weeks after  Christmas.

The following graph shows the actual monthly change from January 2017 thru February 2021 and the monthly forecasts for the next six months.

The forecast for the next six months is dismal.  The forecast for March 2021 is for employment to increase only by 50,000 and then to zero thru August.  The increases in weekly new unemployment claims will be reflected in the monthly payroll employment changes.


Updated on 21 January 2021 using monthly data thru December 2020.

SOURCE: FRED, series PAYEMS, seasonally adjusted