This veteran stock-market forecaster sees S&P 2,200 at year’s end

This veteran stock-market forecaster sees S&P 2,200 at year’s end
Published: June 10, 2016 6:30 a.m. ET

Sam Eisenstadt’s model suggests bulk of the projected gains will come sooner than later

By MarkHulbert Columnist

Adrienne Grunwald for the Wall Street Journal

Sam Eisenstadt at home with his wife, Edith.

CHAPEL HILL, N.C. —The S&P 500 will be trading at 2,220 at the end of this year—versus around 2,100 currently. Adding in dividends, that works out to a 6.3% total return for the second half of 2016.

This upbeat forecast comes from Sam Eisenstadt, the former research director at Value Line Inc. Though he retired in 2009 after 63 years at that firm, he continues in retirement to update and refine a complex econometric model that generates six-month forecasts for the broad market.

Normally I wouldn’t devote a column to a particular analyst’s projection, since forecasts are a dime a dozen on Wall Street. But most of the models generating those forecasts are unable to satisfy simple tests of statistical significance.

Eisenstadt’s, in contrast, does.

Though it isn’t perfect, it has some notable successes to its credit. At the end of last year, for example, his model was forecasting that the S&P 500 SPX, -0.92% at the end of June would be trading at 2,050. As fate would have it, of course, stocks have done slightly better than this, and are today 2.9% higher than that forecasted level. (Of course, June still has a couple of weeks to go, and anything could happen between now and then.)

Given the wide range of possible directions the stock market could have taken over the last six months, it must be considered a success when a forecasted six-month return is off by just 2.9 percentage points. The first few weeks of the year were actually the worst in U.S. history for the stock market, for example, leading to many predictions of doom and gloom. But we now see that—if anything—Eisenstadt’s model was slightly too conservative.

Though the last six months are just one data point, his model has been more right than wrong over the last half-century, according to results of statistical tests that Eisenstadt has shared with me.

So the most recent forecast from Eisenstadt’s model is reason for at least some optimism.

What about 2017? Eisenstadt’s model sheds no light on that. But, in an email, he pointed out that his model suggests that the bulk of the market’s projected increase over the next six months will come sooner than later, implying a “flattening near the end of the year.” That in turn implies that the stock market in early 2017 may be facing some stiff headwinds.

For now, though, Eisenstadt’s model is suggesting that the path of least resistance for the stock market over the next six months is for a modest advance.

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