Value Line Arithmetic Average VALUA  -2% (Weak)
Dow Jones Industrial Average ^DJI +2% (-0.04 to +0.07)
S&P 500 Index ^GSPC +3% (-0.04 to +0.09)
NASDAQ Composite ^IXIC +0% (-.0.07 to +0.08)
NASDAQ 100 NDX +3% (-0.06 to 0.11)
Russell 2000 ^RUT -2% (-0.17 to +0.12)
Next 3 Months:  VALUA still looks mildly negative.
VALUA Probability of at least breaking even: 50% (46% to 57% – Well below average

ETFs Alpha Test posted HERE

Agonizingly slowly, the Federal Reserve’s relentless campaign of using higher interest rates to slow inflation continues, while high deficit spending by the Federal Government works in the opposite direction to stimulate the economy. The net result remains a very gradual slowing of the economy. The economy appears to be on the final approach for what hopefully will be a soft landing, happening without a stock market crash.

My forecasting models tell that same story. Prospects for the broad U.S. stock market stay slightly below normal, a tad worse than last month. My primary bellwether is the Value Line Arithmetic Average VALUA: equal weighting of about 1700 companies representing about 90% of U.S. corporate activity. Since 1984 VALUA has gone up for 88% of all 6-month periods. In the next six months, the models only give it about a 50% chance of breaking even, and overall the models predict a 2 percent loss. (Range: +5% to -8%) The worst forecasts are for 3 to 4 months out and could be in the vicinity of -10%.

Sadly there lurks a chance of a major financial panic and collapse in the big-money long-term debt arena. Financial collapses during the Savings and Loan Crisis of 1985-1987 and the Great Recession of 2007-2009 were both instances of Federal Reserve interest rate increases that led to short-term interest rates being higher than long-term rates — an “inverted yield curve”. Today’s interest rate inversion is greater than previous inversions and has already lasted much longer than any other. Plenty can go wrong and it will play out over the next year.

As shown in the graph below, my VALUA models have done well over the past decade in forecasting major turns in VALUA. Right now, they do NOT expect a major surge in prices and they DO NOT YET see a major price collapse. All the other major market indexes that these models assess have similar expectations: up or down a couple percent.

I have posted the second monthly update to my alpha test of Exchange Traded Fund forecasts. Hopefully, next month I can add 1 month to 5 month forecasts for the same group of ETFs.