A mathematical indicator that has outperformed the S&P 500 for the last three centuries and has forecasted the index’s major bottoms as well, is now forecasting the S&P 500 to decline by 79.95%. The S&P is forecasted to descend to 965.82 from its 2022 all-time high of 4818.62. (View the 13:55-minute video “Research Findings in Support of 79.95% S&P 500 Decline“, which explains the proprietary research findings detailed within this article.)
The indicator that bases its forecasts on the monthly inflation rate is the S&P 500’s real (inflation-adjusted) dividend yield (Div/Y). The Div/Y’s precise percentage decline for the S&P is based on the following:
- Since February 2021 S&P 500’s real dividend yield has been negative
- Index’s history of descending to a level that enables the real Div/Y to become positive.
The table below depicts the S&P 500’s real dividend yield for the first four months of 2022, which is calculated by subtracting inflation from the nominal yield.
The table below contains the S&P 500’s current month and prior three months’ price targets. Targets for S&P to decline by 78.10% to 81.03% are based on the index’s real negative dividend yields for the respective months. AlphaTack.com adjusts targets monthly to reflect the published Consumer Price Index (CPI) utilized to calculate the S&P’s real dividend yield (Div/Y).
A S&P 500 decline of 78.1%, the lowest forecasted decline in the table above, would likely coincide with the U.S. entering its 3rd Great Depression, the first since the 1929 – 1938 Great Depression.
AlphaTack.com was founded to educate investors about the risks they face because of the secular bull market, which began at the S&P 500’s March 2009 low and ended at the index’s all-time January 2022 high. The bull was replaced by a secular bear. Based on the statistics for all prior secular bears, the S&P will decline from 47% to 85%, and will not reach a bottom until 2030 ― at the earliest. AlphaTack, owned and operated by Dynasty Wealth, LLC, embraces the slogan “Growing Assets Against the Wind”, and has developed strategies and proprietary algorithms enabling investors to grow their portfolios during recessions, depressions and volatile stock market conditions.
Declines of the S&P 500 to a sufficient level permitting the dividend yield to become positive, can be gradual or violent. January 1968 to August 1982 was the S&P’s only gradual decline to a positive yield that did not end in violence. Not surprisingly, all other past corrections were violent and became infamous. Below are the four most recent trips to the bottom that ended in violence:
- November 2019 to March 2020 Coronavirus Pandemic Crash
- September 2017 to December 2018 Christmas Eve Low
- December 2009 to June 2010 May 2010 Flash Crash
- August 2002 to November 2008 Lehman Bankruptcy & 2008 Great Recession
The table below contains all of the periods from 1899 to 2022, within which the S&P 500’s real dividend yield was negative for a minimum of 12 consecutive months, and the highest inflation rates for each period. Additionally, to qualify, a period must have had a minimum negative dividend yield of −4.75%. The S&P’s highest negative dividend of −17.1% occurred during the 3/1916 to 12/1920 period. (The S&P’s cumulative loss for the qualifying periods was −121.35%.) To make matters worse the periods were also fraught with inflation as high as 19.67%.
The simple methodology of “sell the S&P 500 when the index’s yield goes to negative from positive”, was accurate for seven of the eight (87.5%) qualifying negative dividend yield periods. The only period for which the negative yield did not result in a loss for the S&P was from 1909 to 1910. However, the gain was only 1.36%. In summation, the probability for a loss was 87.5% and the probability of not experiencing a meaningful gain was 100% for those who were invested during all eight of the S&P’s negative yield qualifying periods from 1899 to 1982.
The chart below depicts the Consumer Price Index (CPI) and the performance of the S&P 500 during its longest negative yield period since its inception. From January 1968 to August 1982, the index’s dividend yield was negative for 175 consecutive months. For the period the S&P 500 experienced extreme volatility with declines ranging from 20.5% to 50% from its peaks to its troughs. A buy and hold the S&P 500 strategy from 1968 to 1982 resulted in a loss of 6.6%. Obviously, the index did not keep up with inflation. The CPI went from 34.10 in 1968 to 97.50 in 1982, an increase of 186%.
PLEASE NOTE: Because of the extended periods having double-digit inflation from 1899 to 1982, a logical conclusion would have been to invest in inflationary assets including real estate and precious metals during extended inflation periods. However, there are two major issues problems with this methodology;
1. From 1872 to1911, all inflationary periods were followed by extended deflationary periods of 12 to 70 months, within which high deflationary rates ranged from −6.19% to −19.64%.
2. Additionally, based on preliminary findings from my ongoing research of U.S. CPI volatility from 1871−2022, the probability is high for the U.S. economy to soon experience the highest deflation rates since the late 19th and early 20 th centuries. For more about deflation please read “Federal Reserve’s Repeat of 1920−1931 Policy Mistakes Set Stage for Next U.S. Great Depression”, Michael Markowski, June 4, 2022, AlphaTack.com.
3. There were 41 periods of inflation between 1899 and 2022 that were less than 12 months in durations. Thus, divesting of financial assets and investing in inflation assets upon a bout of inflation occurring increases asset-class reallocation volatility. The AlphaCenturi algorithm was developed to identify bouts of inflation with high probabilities of being temporary, thus removing investor market risk. Continue reading for more about AlphaCenturi.
Research findings also indicated a high correlation between the S&P 500 reaching a significant bottom and its Div/Y going from negative to positive. The table below contains the S&P’s three most recent infamous bottoms. The 2008, 2018 and 2020 dividend yield status changes from negative to positive, coincided with- or just-prior-to infamous S&P 500 bottoms. The March 2009 bottom, which was preceded by the bankruptcy of Lehman Brothers, is the most famous since the October 1929 crash. The “Christmas Eve low” for the year 2018 is yet another classic bottom that will live in infamy. Finally, the S&P 500’s dividend yield became positive upon the index declining to its March 2020 crash low after the Coronavirus Pandemic reached the U.S. in February 2020.
The chart below depicts the S&P 500’s two most recent 2018 and 2020 corrections which enabled the index’s dividend yield to become positive.
Overwhelmingly, findings from my research of the S&P 500’s dividend yields from 1871 to 2022 support that since the index’s inception the S&P’s Div/Y status-changes have been an extremely valuable indicator to determine the following:
- When the S&P 500 or stock market is near a major bottom, and…
- When to be in or out of the S&P 500 for extended periods. For those minimum 12-month periods, within which the dividend yield was negative, the index either declined or had minimal per annum gains. For those qualifying periods, within which the dividend yield was positive, the S&P’s average gains were as high as 42.8% per annum.
These findings led to my hypothesizing how an indicator could have been ― and continues to be ― extremely accurate and reliable for three centuries. The only logical answer was the generational investor.
Generational investors have influenced stock market bottoms since the 19th century. They are the world’s oldest, largest, most disciplined and longest-term investors. At December 31, 2021, the aggregate assets held by generational investors were equivalent to 129% of the aggregate value of all U.S. stocks, and were double the net aggregate assets of all U.S. stock, bond and money market mutual funds. For more about five “dividend centric” generational investor groups that include Sovereign Wealth funds and Family offices, and more, please read “S&P 500’s Bottoms Occur Only When Generational Investors Buy!”, Michael Markowski, June 4, 2022, AlphaTack.com.
The bottom line is, that whenever the S&P 500’s dividend yield is negative, the generational investor is not a net buyer of stocks and is more likely to be a net seller. Instead, the generational investor has the discipline to maintain cash reserves and to own short term U.S. government guaranteed bonds until a correction takes the S&P 500 to a positive yield valuation. Thus, when the S&P 500’s real Div/Y is negative there are no floors between the level it is trading at and the level the index must go to for the dividend yield to become positive. Because of this phenomenon, whenever the index has a negative dividend yield it is at extreme risk for a violent correction; and, especially should the negative yield coincide with S&P 500 at, or near an all-time high. This was the case that precipitated the following violent corrections:
- February to March 2020
- October to December 2018
- January to April 2018
- May to June 2010
The infamous “May 2010 Flash Crash” that occurred on Thursday the 6th, resulted in the Dow Jones losing 9% of its value within minutes. The Dow Jones is primarily comprised of blue-chip dividend-paying companies, including General Electric’s and Proctor & Gamble’s share prices that were afflicted by the Flash Crash. The crash coincided with the December 2009 to May 2010 period within which the S&P 500’s Div/Y was negative. The crash further supports the thesis that the S&P 500 is subject to extreme volatility whenever its Div/Y is negative. When the S&P 500’s dividend yield is positive, the highly disciplined generational investors maintain price limit orders to purchase shares at below the market price. When the dividend yield is negative they do not enter or maintain below-the-market limit orders at any price other than the price at which the Div/Y becomes positive.
For more about generational investors and how their core disciplines evolved from the extreme CPI volatility in the late 19th and early 20th centuries, please see, “S&P 500’s Bottoms Occur Only When Generational Investors Buy!“, Michael Markowski, June 4, 2022, AlphaTack.com.
Research of the S&P 500’s dividend yields from 1871 to 2022, overwhelmingly supported its dividend yield (Div/Y) positive/negative status being the key indicator for when to be in or when to be out of the S&P for extended periods. The findings revealed that for those periods with minimums of 12 months of negative dividend yields, the index either declined or had minimal per annum gains. Statistics further confirmed that for those qualifying periods, within which the dividend yield was positive, the S&P’s average per annum gains were as high as 42.8%.
The Div/Y indicator enables decades-long asset-class allocation decisions, and when to be in or out of the stock market.
Further research was conducted on periods of less than 12 months ― dating back to 1871, during which the S&P 500’s dividend-yield status fluctuated between positive and negative. The goal was to reduce asset-class allocation volatility and risk by identifying and then isolating signal changes with a high probability of having durations of less than 12 months, because fluctuations could prove to be temporary they needed to be eliminated. From 1871 to 2022 there were 41 such periods.
Findings from the research resulted in the development of AlphaCenturi, a rules-based algorithm that is either long or short the S&P 500 for 365 days per year. AlphaCenturi reduces the asset-class reallocation volatility. Had AlphaCenturi been available it would have disregarded the Div/Y’s January 1966 and May 2014 sell-the-S&P-500 signal changes. From January to February 1966, and from May to August 2014 the S&P’s dividend yield had reverted to positive. Losses from the signal changes that proved to be temporary were 3.6% and 5.4% respectively. AlphaCenturi’s signal also went negative from positive in June 2021 when the S&P 500 was at 4302.43; this, after the Div/Y had gone negative in February 2021 when the S&P 500 was at 3950.43. At its 2022, May 20th low the S&P 500 had declined by 11.4% from AlphaCenturi’s negative June 2021 signal and by 3.5% from the Div/Y’s negative February 2021 signal.
From 1871 to 2022, AlphaCenturi had 49 long-to-short or short-to-long signal changes. The table below contains all of AlphaCentui’s signals which had durations of 100 or more months.
Since AlphaCenturi‘s long/short signal changes have averaged 3.05 years from 1871 to 2022 a comparative analysis was conducted. The mandate was to determine the returns from selling the S&P 500 short versus investing the sale proceeds into short-term savings accounts, interest-bearing notes, etc., at an average 2.4% per annum interest rate. The gains from following the more conservative interest-bearing instruments instead of shorting the S&P 500 strategy were 101% higher than following a long/short strategy. The chart below depicts that $100 invested into AlphaCenturi‘s S&P 500 Long/2.4% strategy in 1871 (hypothetically), increased to $1,079,789.00 in 2021: $100 invested into a buy and hold the S&P 500 strategy, only increased to $96,910.00 for the 147-year period.
PLEASE NOTE: Because AlphaCenturi is either long or short the S&P 500 for 365 days a year it operates similarly to another of AlphaTack’s core algorithms, the Bull & Bear Tracker (BBT). The BBT was developed in 2018 from my research of all market crashes since 1929. The chart below depicts that the BBT gained 21.58% vs. the S&’s decline of −13.61% during the first four months of 2022. From 2018 to April 30, 2022, the algorithm gained 224% vs. 51% for the S&P 500. The BBT’s success ratio average since 2018 is 55%. This illustrates that the BBT is an excellent alternative to a 2% per annum bond for those periods that AlphaCenturi is short the S&P. (Access to the BBT is exclusively available via, AlphaTack.com.)
The buy and sell signals for both Bull & Bear Tracker (BBT) and AlphaCenturi are utilized for when investors should be in or out of the S&P 500. Differences between the two algorithms that monitor the S&P, follow:
- Bull & Bear Tracker predicts direction S&P short term (average 4.5 days)
- AlphaCenturi predicts S&P direction long term (average 3.06 years)
With algorithms that deliver a one-two punch, AlphaTack.com is the only provider of a comprehensive strategy to enable a portfolio to increase during cyclical and secular bear markets. AlphaCenturi indicates when an investor must be defensive or offensive over the long haul. The Bull & Bear Tracker enables a portfolio to grow by leveraging the short term volatility, which occurs regardless of a market’s macro or long-term direction.
To learn more about AlphaCenturi and the success ratios for its signals read “Algorithm Proven Over Three Centuries – Short S&P 500”. To understand the development-cycle and the efficacy of an algorithm developed from backtests, [click here]. AlphaCenturi’s signals are exclusively available through AlphaTack.com, a provider of proprietary intelligence to professional and generational investors ― especially to the family offices that preserve and grow a family’s capital for future generations.
The Div/Y, a mathematical indicator, which has outperformed the S&P 500 for the last three centuries, is forecasting the index to descend to 965.82, a decline of 79.95%, from its 2022 all-time high of 4818.62. The descent, which is inevitable unless inflation subsides, can either be gradual or violent based on the index’s previous trips to positive dividend yield territory. A decline of such magnitude, would be the catalyst to cause the U.S. economy to enter into a significant economic contraction, which could easily transform into the first U.S. great depression since 1929−1938.
The present economic conditions; accelerating inflation, S&P 500 near an all-time high and a slowing economy, are eerily similar to the conditions in 1919, which led to the first U.S. Great Depression. Please see “Federal Reserve’s Repeat of 1920−1931 Policy Mistakes Set Stage for Next U.S. Great Depression”. The article covers the common denominators shared by the first (1920–1921) and second (1929–1938), and the soon-to-occur third U.S. Great Depression. The article also includes five policy mistakes made by the Federal Reserve from 1920 to 1931, which led to the following:
- First U.S. Great Depression (1920–1921)
- Bubble high for the S&P 500 in 1929
- Extension of Second U.S. Great Depression (1929–1938), and its severity
The secular bear market’s 47% to 85% decline statistics in the tables above and below fully support AlphaTack’s projections in the table below. The table depicts a decline of 41.9% to 79.95% for the S&P 500 from the index’s January 2022 all-time and secular bull high.
PLEASE NOTE: AlphaTack’s decline forecasts of 41.9% to 79.9% are based on its two S&P 500 proprietary valuation metrics. These valuation metrics include the AlphaTack PE multiple (AT/PE) and the Div/Y (dividend yield). AlphaTack’s minimum projected decline is based on the S&P 500 bottoming at 13.4, which is the average AT/PE at all of the index’s extreme lows from 1921 through 2020. The maximum decline projection is based on the level that the S&P 500 must descend for its Div/Y to go from negative to positive. Please click to see my article, “Due to inflation’s effect on PE, S&P 500 to decline by at least 41.9%”, Michael Markowski, March 20, 2022: this article that is about inflation’s effect on the S&P 500’s PE multiples, which preceded, “Inflation to Shoulder Blame for 79.9% S&P 500 Decline”, Michael Markowski, June 4, 2022, AlphaTack.com. The S&P 500, at its low for 2022, had declined by as much as 14.6% since the March 20, 2022 article was published.
The probability for a substantial draw down of the S&P 500 by end of 2022 is high: such a correction will coincide with the beginning of a U.S. recession. The inability of the index to recover quickly and sufficiently from headlines reporting such a significant decline will increase the probability that a recession would rapidly transform into the 3rd Great U.S. Depression.