Where will the S&P and Dow go up in 2017 ?

Summary

Author(Sanjeev Sharma) published a formula in 2014 at Seeking Alpha to predict the stock market based on the disposable income of the middle class. These factors have helped him predict the market accurately since 2009 on Seeking Alpha.He uses the same formula to predict for 2017.

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A broad stock index of the US market like Dow or S&P500 is impacted by the purchasing power of the consumer or in other words disposable income of the masses. In 2014, I published a formula on Seeking Alpha/Talk market to predict the stock market for a year based on factors influencing the disposable income of the middle class. I have been using these factors to predict the stock market since 2009 and so far the formula has never failed.

Let us use the same formula this time again for 2017:

S&P increase /year = 20.2

+3.4* percent increase in Wages

-3.4 * percent increase in CPI

-0.8 * percent increase in Home prices

-0.5* percent increase in gas prices in first 4 months of the year

-1.4 *(percent increase in home prices * percent increase in ten-year yield )

-7.4 *(percent increase in ten-year treasury yield * percent increase in ten-year treasury yield )

Here are my assumptions for these factors for 2017:

Wages: Wages went up more 3% in 2016 and with low unemployment and Mr. Trump’s push to bring jobs back to the US, wages should go up at least 6% in 2017

CPI: With a strong dollar impacting import prices, CPI should not go more than 2%, similar to 2016

Home Prices: With rising interest rates, home prices should stall or go negative. I would use 0% rise in the calculation.

10 year Treasury yield: With clear signs by the Fed to increase the interest rates 3 times in 2017, the 10-year Treasury should go up at least 0.5% in 2017. For the sake of this calculation, I would use the number as 1%.

Gas Prices: With the Trump administration not so against Russia, nor the cutting down of oil production by major oil producers, gas prices should go up another 20% in 2017 just like they did in 2016.

2017
Increase Factor TOTAL
wages 6 3.4 20.4
cpi 2 -3.4 -6.8
gas 20 -0.5 -10
home prices 0 -0.8 0
10 year*10 year 1 -7.4 -7.4
home*10 year 0 -1.4 0
static factor 20.2
Total-> 16.4%

Conclusion: 2017 is a different year due to a new US president who has vowed to change the existing globalization-based world order. The impact of changing relations with China still need to be observed. It will be a test of the disposable income formula if the disposable income of the middle class impacts the stock market in the changing world order.

Though the disposable income formula predicts the stock market going by more than 16% in 2017, as the stock market has already gone up since the November 2016 election in anticipation of higher wages in 2017, I would say the stock market will go up around 10% in 2017.

Source: Seeking alpha

Sanjeev Sharma

Consultant and Author of '5 Core Methods of Innovation'

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