Forecast the Future Standard & Poor’s 500 Index for the 1st Quarter 2023

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This is the forecast of the S&P 500 Index for 1Q 2023. It is based on the linear regression model, where I use the Gross Domestic Product (GDP) to predict the value of the S&P 500 Index. This forecast tries to predict a general pattern and direction of the stock market in the near future. When the forecast calls for a negative return, it is a warning sign. It means that the S&P 500 Index may be expensive, and equity investors should be extra cautious in the near term. On the other hand, when the forecast calls for a positive return, the S&P 500 Index may be trading at a favorable price level.   

Based on the regression results, the S&P 500 index is valued at the 4,620 level for the 1st quarter of 2023. On February 24, 2023, the actual S&P 500 index closed at 3,970.04. If the model is correct, the potential near-term upside is 650 points or 16.36%. The current S&P 500 index remains attractively priced. Equity investors may still find value in today’s stock market if they are willing to weather near-term volatility and hold on to the investment long-term.  

This prognosis is based on the expected Gross Domestic Product (GDP) of the United States in nominal terms and current USD terms. I use the GDP to explain the value of the S&P 500 Index. I use the last 10 years of quarterly data for the S&P 500 Index and the GDP to run a linear regression model. I intentionally limit the number of observations to the most recent 10 years. It enables me to focus on the appropriate current structure of the economy. The model continues to change and reflects the ever-changing economic system.

For me to forecast the S&P 500 index for the 1st quarter of 2023, I have to calculate an estimated GDP for the 1st quarter of 2023 as well. According to the economic projections of the Federal Reserve Bank Board Members and Federal Reserve Bank Presidents released on December 14th, 2022, the real GDP is expected to increase between 0.4% and 1.0%, and Personal Consumption Expenditure is expected to increase between 2.9% and 3.5% for the year 2023. As a result, the nominal GDP is estimated to rise between 3.3% and 4.5%. Next, I divide the annual expected GDP growth by 4 to calculate the 1Q 2023 GDP number.

By multiplying the current dollar GDP for Q4 2022 by the expected nominal change for the 1st quarter of 2023, I calculate the GDP for the 1st quarter of 2023 to be between $26,360 and $26,439 billion. Next, I can forecast where the S&P 500 Index will close at the end of the 1st quarter of 2023. I am using the Excel spreadsheet to run a linear regression model where the S&P 500 is a dependent variable, and GDP is the independent variable. Based on the last ten years of quarterly data, I forecast the S&P 500 Index to close between 4,608 and 4,631 at the end of the 1st quarter of 2023 (see Table 1). The midpoint for the S&P 500 index is forecasted to be at 4,620 during the 1st quarter of 2023.

(Table 1, The most recent ten years of quarterly data for the S&P 500 Index and nominal GDP used in the linear regression model).

Summary statistics show that the GDP can explain 84% of performance in the S&P 500 Index (see Table 2). The overall regression model looks appropriate to be used in the S&P500 forecast since the Significance F is very small, near zero. It means there is a very small chance that the results are based on random luck. Also, the P-value of the intercept and the independent variable (GDP) is very small, near zero. This means that the GDP is statistically significant in explaining the performance of the S&P 500 Index. Also, the best-fit line shows how close the predicted values are to the actual S&P500 index (see Chart 1).

(Table 2, Summary Statistics.)

(Chart 1. Best Fit Line for the actual S&P500 index vs. predicted S&P500 index)

The S&P 500 forecast for the first quarter of 2023 shows that the index may still have about a 16.36% upside remaining from February 24, 2023 close price. The S&P 500 index is valued at 4,620. The S&P 500 index appears to be attractively priced at this level. Equity investors who purchase the S&P500 index may have a fair chance to be compensated for the risk taken. As always, this forecast, as well as any other prediction model is not perfect. This model can be used as one of the tools to help measure how expensive or discounted the stock market is near term. As practice has shown, markets can be volatile, surprising, and irrational.

The Federal Reserve Bank, retrieved on Februart 26, 2023

U.S. Bureau of Economic Analysis, Gross Domestic Product [GDP], retrieved from FRED, Federal Reserve Bank of St. Louis;, February 25, 2023.

Yahoo! Finance, S&P 500 index data, retrieved from, February 25, 2023.

The analysis is based on historical data and future expectations that may not be correct. This paper was written as an opinion only. The data is not guaranteed to be accurate or complete. Please consult with your financial advisor, before making an investment decision. Neither ECNFIN.COM nor its author is responsible for any damages or losses arising from any use of this information. Past performance doesn’t guarantee future results. and its podcast are not associated with nor do they necessarily represent the opinion or advice of Epiqwest Culver Wealth Advisors LLC.

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