Guesstimating the Markets {Part II}

Today I'll offer up the first market scenario that I have developed.  This BTW is how I rely on the playbook and one of the methods that helps me develop a game plan for clients. Now I don't claim to have any special powers in prognostication about where stocks might be in December but I will rely on over 20 years of experience and study which gives me some feel as to what I think is likely to occur.  The chart above and the other ones I'll show in the rest of this series are different scenarios that I think have the possibility of occurring. A few more things.

1.  These scenarios are based on what we know today. An unexpected event could throw this whole exercise down the drain.

2.  Markets will become slaves to the election in November the closer we get to that event.

3. Do not go trade or invest based on what you see here! Remember the consigliere's maxim, "markets will do what they have to do to prove the most amount of people wrong"!

4.  Treat these scenarios as generalities.  I have no way of knowing whether the end points will play out the way I am envisioning here and offer these up as a start point for more specific analysis.  As an example just because in the chart above we show stocks topping out in May or June does not mean even if we are right on direction we'll get it correct on time.

Scenario #1:

Markets make marginal new highs between now and early summer.  The Summer doldrums set in, a slight slowdown in economic growth occurs and issues in Europe preclude stocks going much higher than the 1420-1430 range on the S&P 500.  After a brief period of chop stocks decline 6-10%.  A rally is capped until markets sort out among themselves who will be the winners in November.  At that point markets resume their rally and end the year somewhere  between 1450-1500.  This scenario gives President Obama 50% odds of being re-elected.

I assess the probability of these scenario occurring in some general form similar to what I show above as 30-50%.

*Long ETFs related to the S&P 500 in client and personal accounts.