Beyond Projections: The Singular Graph Pointing to a 40% S&P 500 Upside by June 2025
This singular graph, free from complexity and noise, subtly reveals market truths about improved company margins, lower inflation, and the potential for new highs in the S&P 500.
Introduction:
In the intricate landscape of investment strategy, where complexity often clouds clarity, simplicity holds a quiet power. Today, we embark on a journey to unravel the intricacies of market dynamics, guided not by overwhelming data but by the elegance of a singular graph—the difference between the production price index and the consumption price index. This unassuming chart, marked by its mean-reverting nature, harbors the keys to understanding company margins, inflation dynamics, and the future trajectory of the stock market.
The Unspoken Language of the Graph:
At the heart of our exploration is a graph that communicates in subtleties and nuances. The mean-reverting nature of the production price index, serving as a leading indicator for the consumer price index, unveils a narrative when scrutinizing the year-over-year (YoY) variation. The consistent lag of the production price index behind the Consumer Price Index tells a story of customers paying more than production costs—an unspoken indication of promising margins for a significant portion of S&P 500 companies.
Strategic Insights: Margin Dynamics and Economic Signals
The simplicity of this graph belies its strategic implications. Beyond predicting company margins, it offers a silent forecast of broader economic trends. When consumers consistently pay above production costs, a ripple effect occurs—enhanced margins for businesses. Simultaneously, the lag in the production index signals a potential moderation in inflation expansion, paving the way for lower interest rates. This dual effect becomes a silent symphony that historically aligns with positive outcomes for the stock market.
The historical performance when this signal occurs and the returns of holding and investment in the next two years are remarkable. The only mediocre case was 1998-2000, where the performance was 4%. While it may seem average, it occurred in the context of the dot-com bubble, with the maximum performance reaching 40%.
Market Resonance: A Glimpse into Future Potential
Since June 2023, the S&P 500 has surged by 8%, yet the real resonance lies in the two-year average of 40%. This deviation from the norm hints at a market narrative beyond the obvious, where understanding the subtle dynamics within a singular graph shapes strategic decisions. Extrapolating this resonance, the forecasted S&P 500 value of 6033 in 2025 becomes not just a number but a glimpse into the potential future—a future molded by the quiet yet potent insights of a singular graph.
Proprietary forecasting model.
Conclusion:
In the pursuit of investment wisdom, simplicity often conceals profound truths. It serves as a reminder that, amidst the cacophony of financial data, the unassuming elegance of a single graph can hold the keys to informed and strategic decision-making in the world of investments.
Wishing you a prosperous 2024 and successful trades ahead!,
Guillermo Valencia A
Co-Founder of Macrowise, a Research Company.
Colombia, January 8th 2024