The VIX might be signaling low volatility, but investor emotions tell a different story. The markets have been a whirlwind from mid-December to mid-January. We saw the S&P dip below the key 5850 level before quickly bouncing back above 6000 by last week’s end.
This week, we’ve seen the major equity averages surge higher, with the S&P 500 and Nasdaq 100 threatening new all-time highs. Stocks like NFLX are posting blowout earnings results, propelling our growth-oriented benchmarks onward and ever upward.
So, what’s next? As we look ahead to February and March, the big question is: does the S&P resume its strong uptrend, reclaiming its momentum to hit 6200, 6300, or even 6400? Or does the market revert to a downward path, with mid-January’s sell-off signaling deeper trouble? The Fed’s next meeting could throw a wrench into things, potentially dampening market sentiment and dragging the S&P toward its 200-day moving average.
To navigate these choppy waters, we’re diving into probabilistic analysis with a fun, choose-your-own-adventure style exercise. Here’s the plan:
Consider the possibilities. Explore four potential scenarios for the market over the next six weeks.
Choose your adventure. Decide which scenario feels most likely and think through its expected impact on your portfolio and investment strategy.
Engage with the community. Cast your vote in the comments below and interact with others to broaden your perspective.
Let’s Reflect Before We Predict
Back in late October, just before Halloween, the S&P broke above 5850, and we asked if it could reach 6000. Out of the four scenarios we outlined then, the market initially aligned with a bearish outlook. But it didn’t last long, quickly flipping back to the most bullish trajectory.
This exercise isn’t about being “right.” It’s about stretching your thinking, preparing for uncertainty, and sharpening your decision-making with probabilistic analysis.
Now, let’s examine four possible scenarios for the S&P 500, starting from the January 17th close around 5997.
Scenario 1: Super Bullish
The rally is back on, with the S&P soaring to 6500 in six weeks—a solid 8-10% jump. This scenario relies on stellar earnings, minimal impact from a strong dollar, and mega-cap growth stocks leading the charge. The Fed meeting becomes a non-event as growth stocks reclaim the narrative, signaling an end to bearish sentiment.
Scenario 2: Mildly Bullish
The pullback is over, and we see a steady rally toward 6100-6200. Growth stocks might stay range-bound, but sectors like financials and industrials step up, reflecting a rotation in market leadership rather than a full-blown surge.
Scenario 3: Mildly Bearish
The market struggles to regain 6100, facing downward pressure. Defensive and value sectors hold their ground, but the S&P retests January lows around 5700-5800. A cautious Fed outlook suggests the uptrend is losing steam.
Scenario 4: Super Bearish
The downtrend resumes, breaking below the 200-day moving average toward 5500. Growth stocks falter, defensive sectors show relative strength, and the Fed’s inability to calm fears weighs heavily on sentiment.
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RR#6,
Dave
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.