Pothole Ahead — Filled with muddy water, so it is not clear how deep it goes.

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As shown in the graph above, my current data-intensive stock market forecasting models are almost uniformly worried about moderate market declines over the next few weeks/months. The forecasts are not terrible, just a couple/few percent drops in most cases. The glaring exceptions are high tech stocks like the Nasdaq 100 where the 6 month decline is expected fall roughly 15% further. Among all 286 ETFs now tracked, 61% are expected to break even over the coming half year. IF a stock decline is actually in the works, it most likely will be somewhat worse than forecast.

If you want a more optimistic market view, my original models — using only about 20% of the data sources in the newer models, but running for the past 20 years in real time with good accuracy — these models are almost uniformly positive with 5% likely 6-month gain and a 95% probability of the S&P 500 breaking even over the next half year.

I side with the mildly pessimistic newer models because multiple independent models for hundreds of Exchange Traded Funds and major corporations are in unusual agreement. They say that weakness has already started and is likely to continue over the next month. Three months from now the U.S. market should be back to today’s levels.

The giant backstop for stock market prices is that the U.S. economy is running near full capacity, the Federal Government is spending at full-tilt stimulus mode, and the AI infrastructure buildout is adding roughly $750B to GDP annually. If one of these pillars crumbles, then we could see something akin to the popping of the Dot-Com Bubble. But, they all appear solid. The overrall market has far to run in due course.

Strong Economy There are problems in some areas, but overall the Gross Domestic Product is almost exactly at the long term Real Potential GDP model of the Congressional Budget Office. This is a Goldilocks situation. Much higher or much less would be very bad news for the stock market.

Corporate profits are rising. Unemployment at 4.2% remains low and is not rising quickly. Financial stress measures are fine. Leading indexes and the Survey of Professional Forecasters are OK, or at least not predicting big surprises. With its new Chairman Kevin Warsh the U.S. Federal Reserve has become slightly more dovish. Money Supply (M2) growing at 5.8% annual rate and the Fed is not decreasing their balance sheet as they had been doing consistently since 2022. That is an important positive.The Trump tariff increases have had la less negative impact than meny economists expected. According to Fitch Ratings the net effective tariff rate is 7.4% and the Penn Wharton Budget Model estimates a 7.2% rate. That is a huge increase from the historical baseline of 2.3%, but nowhere near the initial announcements of 20% to 50% (or so) increases.

Serious Unknowns These forecasting models still do not read news stories, and the probabilities are high that the nudges of economic forces on stock prices will be overshadowed by domestic and geopolitical events. All bets are off if peace suddenly breaks out in the Middle East.

Fuel Gauge LOW?

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China has drastically cut its purchases of oil since the start of the Iran oil crisis to the lowest level in ten years, according to Reuters and others. Perhaps China’s massive switch to renewables and increased use coal has permanently reduced China’s need for imported oil. But, the drop is sudden and the timing is suspicious. Overall, this reduction in oil demand has been a major factor in keeping oil price increases from exploding upwards. It seems highly likely that China may need to buy substantially more oil soon.

Similarly, the U.S. and other nations have been drawing down their strategic petroleum reserves in order to contain oil price shocks. As reported by MarketWatch and others the U.S. supply is now down to its lowest level since 1983 — when the reserve started. According to the report there are serious questions about how much further the reserve can be drawn down.

So, the situation seems a bit like driving a car through a rural area with the fuel gauge light flashing brightly. That is a scary situation. But, it is trivial compared to the moment when the car’s engine sputters, coughs, and dies.

This is worth paying attention to.

Divergence Reversal. Greed->Caution->Fear

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Line graph depicting market indexes over time, showing expected gains (log) on the vertical axis and weeks on the horizontal axis. Multiple colored lines represent different indexes with fluctuations around zero.

NOTE: An enhanced version of SixMonthStockMarketForecast.com is in Alpha Test mode. It provides daily forecasts for nearly 300 ETFs over continuous time spans from 1-week to 6-months. The new site goes live in September, but you can be an Alpha tester now at no cost. Just send me an email at: support@SixMonthStockMarketForecast.com.

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I used to have a single economic model of how the stock market normally behaves under different economic conditions. Now, I have thousands of competing models using mountains of data, and nearly ‘all’ are saying the same thing: Even though U.S. stock market indexes are all near all-time highs, a modest decline is coming to the overall market over the next few months, but a sharp drop of -10% to -20% is likely to hit the high flying technology leaders. The probability of suffering a loss over the next six months is somewhere in the range of 64% to 83%. (The long term average is roughly 20% chance of a half-year loss.) Spoiler alert — the culprit is rising inflation.

Mark Hulbert’s MarketWatch.com column this week focused on a seemingly minor event: Recently the Dow Jones Industrial Average has performed spectacularly well in comparison to the Nasdaq Composite. Both indexes are based on the prices of major U.S. corporations, so, day-by-day they generally perform in largely the same way. But, Hulbert found that the divergence between the Dow and the Nasdaq performance in a recent 7-day period was greater than 99% of all days since 1971 when Nasdaq was created. Hulbert noted: “But 66.9% of the time since 1971, stocks were in a bear market within three months whenever there was a Dow-Nasdaq divergence as large as the current one. “

I track a similar pairing of two slightly different U.S. stock market indexes: S&P 500 versus SPXEW — an equal weighted version of the same stocks as in the S&P 500. Stocks in the S&P 500 are weighted by total market capitalization. As a result, the S&P 500 is dominated by a very small number of mega-sized corporations with lofty P/E ratios. By definition, all stocks count the same in the Equal Weight version. As shown below, the divergence of the two indexes tends to follow a fairly smooth path for years at a stretch, and then rather suddenly shifts in direction. That is what happened over the last couple of weeks — the work horses of the SPXEW did markedly better than the thorobreds controlling the S&P 500. In classic parlance, the Greed that had powered a rapidly rising market has shifted to Caution — investors are moving to less volatile stocks. My models expect that some amount of Fear is next, causing a definite drop in the main averages over the coming few months. Most damage likely will be concentrated in the high flying tech crowd.

Line graph displaying the summed divergence from trends for S&P500 and SPXEW, showing total divergence over time with marked vertical lines indicating key dates.

The models are pointing to a classic market set-up. The economy is way up. GDP has been running higher than the highly reliable long-term expectations in the Congressional Budget Office Real Potential GDP. The AI infrastructure build-out is huge — nearly 1% of U.S. GDP in new spending. Federal Deficit spending is huge — approximately 5.8% of GDP. Together these are massive unsustainable stimulants to the economy. But, inflation is climbing. The Consumer Price Index is rising at a 4.2% annual rate while the Federal Reserve has a target of 2% annual inflation. But, producer prices have been rising faster — 6.5% for the past year and a full 1% just in May. My models really do not appreciate rising producer prices as they tend to strangle corporate profits. What usually happens is that the Federal Reserve begins to apply brakes to the economy in the form of higher interest rates and tighter money supply. Whether it will is completely unknown.

Though, most of our forecasting models are pessimistic, they are not in panic mode. The two plots below show our long term trend models for the S&P 500 and the SPXEW. Neither of them are highly abnormal. The S&P 500 is 5% above trend and the SPXEW is 11% above trend. Typically, this is as a setup for a pullback, but not necessarily a big one.

Line graph showing the S&P 500 index over time, illustrating the index (black line), trend line (blue line), and plus/minus 10% bands (dotted lines) with a focus on divergence from trend.
Line graph depicting SPXEW over time with a trend line and divergence bands indicating plus/minus 10%, showing data from around 1990 to 2023.

Second Half 2026: Short-term Flat. Worries may not hit as fast as our models expect.

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Line graph showing expected gains (log scale) of various market indexes over time from April to November 2026, with distinct colored lines representing different indexes.

Our stock market forecasts are based on what “usually” happens in a given set of economic circumstances. The primary economic concerns now are rising levels of inflation and a very high, sustained federal budget deficit. The usual government response is to tighten spending, while the Federal Reserve usually tightens the money supply and increases interest rates. These efforts aim to cool the economy, often causing short-term stock market pain. Anticipating those “usual” responses is why our SPAIv4 6-month forecasts are somewhat negative for the Russell 1000, Dow 30, and the S&P 500—and severely negative for the Nasdaq 100, with potential drops of up to -20%.

The Unconventional Administration However, the current Administration is far from usual. They view cooling the economy as a political liability and are doing everything they can to stimulate growth. While the Administration makes headlines regarding tariffs and cutting “waste, fraud, and abuse,” federal spending has actually increased, causing the federal deficit to surge. Simultaneously, the Administration has used significant pressure to push the Fed to lower interest rates and expand the money supply. It remains to be seen which direction the new Chairman of the Federal Reserve will ultimately take.

Inflationary Headwinds Inflation is a growing concern. The current 4.3% Consumer Price Index (CPI) is troubling, but an even greater concern for our forecasts is the 11% increase in the Producer Price Index (PPI) since January. Higher prices stemming from oil, tariffs, and general uncertainty pressure both the economy and stock prices. Furthermore, the U.S. federal budget deficit currently sits at roughly 5.8%.

The Oil Factor The impact of high oil prices on inflation is unlikely to dissipate quickly. While oil prices have dropped from the height of the Iran crisis—falling from $118 per barrel to around $77—they remain nearly 30% higher than pre-crisis levels ($60/barrel). Our forecasting models react negatively to these levels. Moreover, the need to replenish drawn-down oil reserves will likely keep upward pressure on prices for several months.

The AI Stimulus Notably, our current models do not fully account for AI infrastructure spending and AI-related productivity gains. (We are working to adjust.) The surge in data center construction, increased electrical production, and widespread business implementation of AI likely represents a $1 trillion annual stimulus, which appears poised to continue for several years. While AI implementation increases short-term corporate spending, the long-term impact on job markets and productivity remains largely unknown.

Conclusion Given the likelihood of continued government stimulus and the massive, ongoing AI build-out, our negative forecasts may be overly pessimistic. These factors make a significant stock market correction appear less likely—at least for now.

(Our new website format with daily updates of forecasts for ~300 ETFs is in alpha testing. Sign up as an alpha tester and get a free one year subscription when the site goes live in September. Just send an email to: Support@SixMonthStockMarketForecast.com)

Alpha Testers Wanted!

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In September, SixMonthStockMarketForecast.com will relaunch in a much more powerful form. We invite you to use those advanced features now and join our alpha testing phase today. Alpha test participants providing feedback will receive a complimentary one-year subscription to the premium features upon launch. We really want your input!

Moving beyond our long-time monthly analysis, the enhanced platform will feature:

  • Broad Coverage: Analysis of nearly 300 popular Exchange Traded Funds (ETFs).
  • Daily Updates: Dynamic forecasting data for every tracked ETF.
  • Multi-Horizon Forecasts: Projections ranging from 1-week through 6-months.
  • Correlated Comparables: Side-by-side forecasts for highly correlated assets.
  • Performance Tracking: Real-time monitoring of actual pricing versus near-term forecasts.
  • AI Flash Insights: Proprietary AI analysis comparing our models for each ETF against general financial consensus.
  • Advanced Screening: Custom filters to isolate the specific ETFs that match your strategy.
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Over the past two decades our monthly 6-month market forecasts have established a strong performance record ( R.square ~0.5), meaning those forecasts have ‘explained’ roughly half of the variation in subsequent 6-month market returns—a meaningful result for financial forecasting, but still far from perfect.

Early results from the enhanced forecasting system are encouraging and appear broadly consistent with the historical performance of our original methodology. However, the enhanced platform has only been operating in real time for approximately one year.

We are conducting alpha testing now and expect to remain in beta throughout the next year as we continue to validate performance, improve features, and incorporate user feedback.

As an alpha tester, you will have the opportunity to help shape the platform before its public release and provide feedback on features, usability, and forecast presentation.

To join the alpha program, email Support@SixMonthStockMarketForecast.com. We will provide instructions for accessing the staging site.

We look forward to working with our first group of testers as we prepare for launch.

It’s all about oil.

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We have little modern economic precedent for a 50% spike in oil prices with further room to run. The only true parallels are the embargoes of 1973 and 1979. While a barrel of crude sat at $60 last fall, it commands $99 today. As the world’s largest producer, the U.S. is better shielded from physical shortages than most countries, yet domestic prices have instantly aligned with soaring global markets. We won’t see major oil shortages, but we may experience shortages of other goods that pass the Strait of Hormuz such as fertilizer. Regardless, almost certainly we will have a spike in inflation.

My short-term market forecasts have turned sharply negative. While 3-to-6-month models suggest a rebound, I am viewing that optimism with skepticism; these models weren’t trained on the structural “scars” left by the 1970s crises. With rising unemployment, stubborn inflation, and tepid GDP growth, the market is currently fueled by bad news. If oil doesn’t stabilize soon, the situation could degrade rapidly.

Irrational Exhuberance Revisited. Ulp!

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(Spoiler alert: scary chart below.)

I have been working to add a quantitative measure of risk exposure to my stock market overview material. There are numerous ways to quantify risk, and I am trying to come up with some sort of composite indicator that includes the full spectrum of “make you want to puke” factors: excessive market valuation, financial instability, geopolitical disruption, political instability, Equity Risk Premium (stock rate of return versus risk free interest return), Things That Go Bump in the Night.

There are plenty of risk measures to choose from and most (except financial instability) are at dangerous levels right now. Using most any of these measures, if market prices were to get back to “normal” (whatever that is) then the stock market could quickly plop down 30% to 50%. If a couple of things went bad at the same time, things could quickly get even worse. Stomach shaky yet?

Anyway, as part of this quest I revisited the data set that Robert Shiller used for his 2000 blockbuster book Irrational Exuberance. He had incredible timing; the book was published just as the horrific Dot Com market crash began. Since publishing, he and Yale University have maintained and updated the data set here . It is a wonderful resource as it has numbers going back all the way to 1871.

Stock pricing is supposedly rational, so it would be reasonable to figure that the general ratio of stock price to company earnings (P/E) would be somewhat constant, or at least it would sort of follow long-term interest rates. It makes sense that it should appear even more smooth with averaging. Shiller’s CAPE P/E measure has a 10-year earnings average to filter out the noise. But even with that decade-long ‘smoother,’ the P/E path is anything BUT smooth.

Here is what I see in the chart; P/E, rather than being steady, follows a kind of rough pattern every few decades. After a severe stock market crash, P/E stabilizes for a while, but then begins an exponential, increasingly rapid, climb. Finally, when that rate of climb ‘turns vertical’, a severe market crash happens. Since 1871 I don’t see any cases of a fast rising P/E climb that smoothly leveled off. Maybe the 1960’s qualify as a P/E leveling, but that amounted in a lost decade for stocks. Yay! Pick your poison.

Right now, P/E is incredibly high and spiking vertically. As the Great Crash of 1929 hit, the CAPE ratio was nowhere near as high as today. The only other time CAPE has climbed this high was also in a spike, December, 1999. The great Dot Com stock market crash began four months later (March, 2000) and hit bottom in 2002 with a total fall of 49%.

I have no Idea if we are on the verge of a similar collapse, or when it might happen. But , I do not like the current P/E spike. It might it might be time to proceed with caution and pay close attention.

March thru August, 2026 — The stock market is OK, but starting to fade. As long as oil flows soon.

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I have a new market summary graph that requires a bit of explanation. It shows 1-year historical price plots for the major U.S. market averages (S&P 500, NASDAQ, Russell 2000, Dow Jones 30) along with my 1-week to 6-month forecasts for each. They are increasingly flat. (As you will notice, I still have not avoided overlapping the labels for each Index. Sorry.) What is new, is the Consensus indicator below the graph. This Consensus indicator needs a bit of explanation.

When I started this blog nearly 2 decades ago, I had one set of formulas that made forecasts for a single market average (Value Line Arithmetic Average) for a single period (6 months), and I ran the evaluation once a month. Then in 2023, things exploded. I now run many thousands of models for over a thousand stocks, ETFs, and Indexes. The models involve a vast array of economic data and cover a full time span from one week, through a year. The models run at least daily. And instead of having a single model to make an analysis, every forecast evolves from consensus decision from increasingly large competing swarms of analyses. (I keep having visions of all the flying monkeys in the 1939 Wizard of Oz. Disturbing. They all work for me now.)

So, the 5-6 month Consensus value on the chart is the new ‘swarm vote’ of roughly 50 seperate and distinct analyses performed in different ways , often using distinctly data streams. For simplicity, I limit the vote tally to a range from +10 to -10. In today’s chart, the swarm was lopsidedly negative for 6-month market prospects (-10), but just slightly negative for the 3-4 month period (0). For shorter time frames, the group view remains positive (10).

The way I choose to read the Consensus reading is that our aging Bull Market is starting to show signs of weakness. The immediate forecasts are positive, but it is time to start paying attention. Surprise negative events ( massive oil supply disruption thanks to the U.S. attacks of Iran) are now much more likely than big positive surprises. It is a good time to be taking profits and reduce risk exposure.

If, or when, the 1-2 month and 3-4 month indicators seriously flash red, it will be time to take cover. And not wait for any 1-2 week warning.

The air attacks on Venezuela and Iran reinforce the need for humility regarding these forecasts. Even though these forecasting tools are gaining sophistication, they never can predict the unknowable or even the simple unknown. Caution is wise.

February thru July 2026 — The Emperor has few clothes

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The stock forecasting models behind this blog continuously crunch and re-crunch numbers for a vast array of economic and business data, most of it going back decades. The data pays greatest attention to factors like GDP fluctuation, and severe financial market stress that have direct statistical correlation to stock market shifts (95% confidence as minimum). As I wrote the other day, the models have some worries, but overall they are not not highly concerned about US stock market performance for the coming half year.

Just because the models are not flashing dire warnings does not mean that the models are going to be correct. This time may, indeed, be different as it is not the usual assets that appear to be shedding value faster then a melting snow cone in July. The MAGA bubble may be is imploding. “Sell America” is a very real factor. This smells like a wiff of fear. It might be time to consider shelter. (Or maybe this is just a false alarm. After all, I am just a crazy prophet.)

I am less concerned by the early movie reviews of the Melania film than by the price charts of the Official Melania Meme Coin and the companion Trump MAGA Meme Coin . Melania debuted at nearly $8 but is now valued at $0.12, a collapse of about 98%. The MAGA coin has fared worse, fetching $15.56 on Memorial Day, 2024, and now selling for slightly under 4 cents. (-99%). Trump’s flagship enterprise, Trump Media (DJT), has lost 88% of its value from a high of $97.54 in 2022. It is now becoming a leader in nuclear fusion? Really? I mean, REALLY?

This just might fit a pattern. Like the numerous bankrupt Trump Atlantic City casino’s. (I remember when they would offer free bus rides and spending cash to geezers in Washington, DC just so they could maintain the fiction of high casino attendance.) And Trump University. Trump Vodka; he is a non-drinker. Trump Steaks. Those super gold leaf sport shoes! Trump Airlines; forgot that one. Trump Mortgage closed after 18 months. Go Trump, an online booking service, also failed after 18 months. Tour de Trump flopped in 2 years. And, of course, there was Trump Magazine a luxury lifestyle publication that died in 2009 after less than 2 years. The newly renamed Donald J. Trump, John F. Kennedy Center had attendance plummet instantly by approximately 50% as he made himself Chairman. Possibly to save face, the Center is scheduled to close for at least 2 years (the remainder of his second term in office). Ironically, the Kennedy Center closure begins on July 4, commemorating the 250th anniversary of the Republic.

To be fair, Trump certainly has had successes in real estate, golf courses, and with the TV show “The Apprentice”. He is a true Confidance Man, a promoter first-class. Even navigating his many failures, Donald Trump personally usually made money. It was his investors, creditors, and suppliers who went broke.

Today, the primary investors and creditors of Donald Trump are the citizens of the United States. To a real extent the rest of the world is stuck in the deal as well. With high spending deficits he is destroying the financial status of the Country. That is fact not opinion. He didn’t start it, but he did make it worse. With tariffs and provocations he has made if hard for many businesses to plan with any degree of certainty. Again, just fact. The overall economic numbers appear to show that a toll is being levied on the economy. (OK, that is still in the realm of opinion.)

One of the largest economic bubbles that may be ready to pop is cryptocurrency. Something that is only of value to criminals wanting to hide their booty. As of early February 2026, the total cryptocurrency market capitalization is approximately $2.24 trillion to $2.35 trillion. That is big enough to matter if it suddenly vanishes in smoke. Within this, Bitcoin constitutes about half of the market. Bitcoin rose gloriously as the “Crypto President” came into office, but now has lost nearly half of its value since last summer. The falling price chart looks like a falling knife. This is big enough to hurt the real economy.

Gold and silver have been rising exponentially in price. And may have peaked. Silver is a useful and wonderful metal, but it does not normally double in price in just half a year like it just did. The last time that happened was in the early 1980’s when a speculative fraud tried to capture the entire silver market. It didn’t end well.

Exploding commodity prices usually start with fearful investors looking for a safe haven, but then greedy investors pile on to catch the mojo. When fear and greed lead to flying prices, crashing prices often follow at some point. With little warning.

Stock market valuations are extremely high, perhaps dangerously high. Columnist Mark Hulbert regularly tracks various market valuation measures. His most recent post tracking 10 long-standing valuation measures points to a possible -5.4% yearly loss for the US market for the next decade. My own long-term trend line for the market (see last post) is much less dire, but it is clear that short term stock prices have much more room to fall than to rise.

A greater concern may be the overall “Sell America” sentiment. It makes the market ripe for panic. Foreign investment does not dominate Treasury Bonds, the stock market, private equity, or real estate. But, foreign ownership is critical in each market. If foreign owners suddenly walk away, panic is guaranteed. Donald Trump has clearly communicated to the rest of the world that: “WE DON’T LIKE YOU!” This is not the way most business owners work to entice new customers. There is just a chance that a few might take offense at the continuing stream of insults and threats.

It is hard to generate a stock market crash. It only happens once a decade or so. A huge number of hardened “buy and hold for ever” investors need to be convinced and get scared enough to actually panic and sell. As long as high deficit spending and massive AI infrastructure creation remain intact the overall U.S. economy will plod on. The key ‘tell’ of a coming recession is unemployment, the sole indicator the makes up the now-famous Sahm Rule . Current unemployment indicates that a near-term recession is unlikely.

But, new hiring, a major leading indicator is way down. The most recent new hires number from November was the lowest since 2011 as part of the Great Recession. Since most of Trump’s business ventures failed at about 18 months, it might be sensible to observe that the current presidential term is in month 13.

The situation appears primed for a sudden shock to cause an instant crash akin to the 1987 or 1998 panic attacks. I have no idea if or when that will actually happen. My number crunching still finds that improbable. Some small market tremors would be a blessing, a mildly painful but helpful inoculation of sorts.

It may be worthwhile to start to pay attention.

February thru July 2026: Slowly plugging along.

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Both my long-running and more current data-intensive stock market models are positive, but unenthusiastic about the U.S. stock market for the coming 6 months. Last month the models expected the stock market to twitch around, but not rise much. And that is what happened. Sometimes these models actually are right.

Goling forward, the models expect flat behavior this month as well, followed by small gains over the next few months. For reasons I have not figured out, the current models see market jitters next month or in April.

Viewed from 30,000 feet, the market should be zooming up. Government deficit spending remains high, continuing to juice up GDP. The Trump tariffs have had a slight reduction in the federal deficit, but continuation of the Trump tax cuts and the addition of more give-aways have more than made up the difference. The AI infrastructure build out (software and hardware) continues as a historic spending stmulant.

The stock market, however, seems to be discounting the spending bonanza. My graph of the long term GDP-based trend of the S&P 500 shows it to be about 7% above trend which is not a big deal. The equal-weight version of the S&P 500 is running an anemic 1% below trend. If the overall economy was really healthy we would have seen a true boom/bubble. This looks more like a hospital patient being kept alive with heroic medical care, and held in a coma by heavy drugs.

Consumer spending continues to climb — but, most spending growth has come from the very wealthy, not the broader population. Unemployment is not terribly high at 4.4%, but the graph has a concerning upward slope and most recent employment has come in the low-paid health care industry. Corporate profits remain acceptable. Money supply is increasing at a moderate pace. Last year’s surge of the Magnificent Seven appears to be waning. The high relative growth of the S&P 500 versus it’s equal-weight version appears to have slowed-down and may be topping.

Could be worse, I guess. Another queasy market month would be fine, I guess.