One Month Stock Market Forecast February, 2018:  0.3% gain ( near average)
6 Month Stock Market Forecast February thru July, 2018: 0% (well below average)
Probability of at least Breaking Even:  0.58 to 0.88 (below average)
What am I doing? Staying fully invested, but realizing things have been going too well.

The U.S. stock market has been doing incredibly well, better than my forecasting models expected.  The models had predicted market gains, but not as good as what the stock market actually did. That’s fine — I’d rather be prosperous than exactly right.

The flip side is that the stock market has been doing too well.  It is not just my models saying the market is lofty.  Morningstar.com calculates that the market is 9% above Fair Value. That might not seem very serious, but since 2000 their Market Fair Value by Sector has seldom been higher (14% in 2004).  Spend some time looking at the Morningstar chart using the “Max” setting. When they calculate that the market is way above Fair Value, the market usually has a correction soon.

Though my quantitative models see a flat market coming by summer, I personally expect the market to perform better than that.  The combination of continuing low interest rates, corporate tax cuts, and increased federal deficit spending have created a lot of stock market enthusiasm.  To me, that market enthusiasm looks more and more like the early stages of stock market bubble euphoria.  What goes up eventually comes down. But, for now, the optimism appears to have staying power.

My forecasting models only see 6 months ahead and they have been quite accurate (R.sq = 0.6) for the 10 years I have been publishing results.  But, knowing the factors in the models, my personal guess is that we are on-track for a major stock market bubble that will pop as early as this summer, but almost certainly within 3 years.

Hopefully, my econometric models will give me and both of my faithful readers plenty of warning. I intend to enjoy the ride, but I accept the fact that sooner or later there will be a market crash.   (My guess: 1 to 3 years from now.)