In July, we introduced our Global Equity Forecast (GEF) model. Though this model is still in the R&D stage, we were confident enough about its preliminary results to begin to share some of them with you. (For a full background on how the GEF works, see our August note.)
This evening, we will review the results of August 27’s month-ahead forecast. And we will present our new forecast for the next month—that is, the month starting at market close September 26 and ending at market close October 26.
Recap of last month’s September forecast. Now that the target month is nearly over, I think it’s fair to say we did OK. Not great, but OK. (Keep in mind that we will not have final-final equity return results until tomorrow at market close. This is by design: In order to give subscribers an opportunity to trade, we stagger our projection-result dates one day ahead of our projection-announcement dates.)
As we expected, this has been a very tranquil month for regional indexes. In particular:
- We projected our Total World Index to gain by a negligible +0.22% and our Big 25 Index to go up by a negligible +0.13%. That isn’t too far off the results to date: down by -1.45% and +0.59%, respectively, at market close today. Our Total World Index underperformed due to the worse-than-expected EM performance.
- Europe was near-zero, as projected. And Latin America and CIS/Africa/Mideast we got right: modestly negative.
- We forecast North America to go slightly positive, but it dipped negative (-0.57%) thanks to Canada; the United States did pull off the slightly positive for the month. Our biggest miss was Asia, and here is where the bigger-than-expected EM swoon really hurt: Instead of +1.18%, we’re seeing (as of end of today’s market) -2.10%.
- Once again, we projected that not a lot would happen around the world. And once again, that’s pretty much what we got.
Among individual countries, our most significant winner was SWITZERLAND—the country whose forecast most exceeded its historical sigma. On the other hand, we lost on the one other country whose forecast exceeded its historical sigma (though by smaller margin): Mexico.
Keep in mind that, so long as the global markets remain tranquil, the number of forecasts exceeding historical sigma—both on the long side and the short side—is smaller than normal. And the margins over sigma are also small. That will change when the markets start showing more motion. Yes, that time will come—the historical record does not lie. Even January and February of this year featured a lot more bettable motion. Please be patient.
As always, please note that our sigmas refer to one-tailed odds of non-zero values: Thus, for one sigma, the odds are 84.1%; for two sigma, 97.7%; and for three sigma, 99.8%.
This month’s October forecast.
Please refer to the table below.
OCTOBER FORECAST SUMMARY: After another slight down month in September, the GEF points again to exceptionally tranquil equity markets again in October, with near-zero % returns both for the global indexes and for most regional subgroups. North America and Europe are projected to be slightly up; and Asia is projected to be slightly down. Latin America and CIS/Africa/Mideast are projected to be down by just over one percent. But no regional move breaks non-zero confidence intervals. Intra-market dispersion is also expected to be lower than the historical average. Among the Big 25, the GEF identifies two movers with over one-sigma odds of upside movement: Sweden and Norway.
