December | 2014 | RecessionAlert

Archive | December, 2014

Valuation estimate of SP500 2015 returns : 2,246 target

By RecessionALERT on December 19, 2014 in Reflections

The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 are […]

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RecessionALERT Valuation Index (RAVI)

By RecessionALERT on December 2, 2014 in Research Papers

PART-1 There are currently 4 mainstream models used to forecast 10-year total returns on the SP-500 (dividends re-invested) The Shiller CAPE ratio (PE10) The Warren Buffet Indicator Tobin’s Q-Ratio Average Investor allocation to stocks The non-linear quarterly correlations between these four models (x-axes) and achieved 10-year future total returns (y-axes) on the SP-500 since 1970 are shown below: Whilst there have been successful variations that improve long-run 10-year return correlations slightly (such as John Hussmanns’ Peak Earnings version of the Shiller […]

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IMPORTANT DISCLAIMERS: Although many of our models rely heavily on back-testing, optimisation and probability methods, please note that past performance is NO GUARANTEE for future returns. No system devised by man can predict the future, let alone the future of the markets and economies. What we have are sets of mathematical models that use historical data and varying theories to pinpoint places in time when the STATISTICAL LIKELYHOOD of calling the start and end to recessions is the greatest. In the midst of all the best mathematical models, you can have geo-political events, wars, terrorist attacks, natural disasters and even nuclear accidents that tip everything upside down. This is always a risk factor you need to factor in on any recession call no matter how confident you are in a signal. The SuperIndexes are created through mathematical and statistical optimisation techniques that best fit the historical NBER data. There is no guarantee that out-of-sample performance will match that of prior in-sample performance.