The Forecasting Advisor began to assess in December 2010 the risk of a reversal of the U.S. stock market in a bear market with its exclusive stock market cycle model. The stock market cycle model integrates a number of key U.S. economic and financial indicators, such as on the state of the economy and labour market, interest rates, consumer sentiment and the P/E ratio, to determine the probability of reversal from a bull market to a bear market or from a bear market to a bull market. The probability is calculated at the beginning of the month and for forecast horizon of two months. The model predicts a reversal of the S&P 500 index from a bull market to a bear market when the probability is equal to or greater than the usual threshold of 50%.

The assessment of the real-time forecasts of the U.S. stock market cycle model can be obtained from the following link: document.

Key results are:

  • Before, at the beginning and during each of period of decline since December 2010, the model did not predict a reversal of the S&P 500 index from a bull market to a bear market as the probabilities never increased above the usual threshold of 50%. In other words, the model did predict, based on its economic and financial indicators, that there will be no reversal of the stock market cycle and that, therefore, the bull market would remain intact.
  • The forecasts proved to be true or accurate as all periods of decline in the S&P 500 index never reached the stage of a bear market. A bear market is generally defined as a decline of 20% and more over a long period of a time.
  • Thus, for all periods of decline in the S&P 500 index since December 2010, the model gave an accurate assessment of the near-term risk of a reversal of the U.S. stock market in a bear market.

Looking ahead, the U.S. stock market cycle model will provide unique and valuable information on the risk or the probability of a reversal of the stock market from a bull market to a bear market or from a bear market to a bull market.