S&P 500: neutral in 2015 at 2,112, expect the rate hike to happen in December 2015, as of June 1, 2015.

We got one thing right that S&P was going to have a correction around or before the Fed officially stopped the QE program.

But, we were totally wrong that the self-reinforcing feedback loop mechanism actually has continued to work even after the QE program was ended and in effect, the S&P has remained slightly positive this year; the central bankers have come out frequently to “protect” decreases of the stock markets whenever they happen. The previous perception of the “strong” recovery of United States with the dollar rally has faded a bit so far, but the economic stats have not gone totally negative at all.

Going forward this year, we don’t think S&P will close in year-end with a large loss as we think the markets continue to expect that as long as the Fed does not hike the rates in a fast pace, the economy will not be in a terrible shape. The expectations have and will reshape the reality. The logic flow will basically be and has been in this year: the economy gets stronger, the Fed accelerates the timing of the rate hike, the dollar gets stronger, the market has a small correction, the economic stats come in weaker, the Fed decelerates the timing of the rate hike and the dollar gets weaker. Because of this back-and-forth process, we expect the rate hike will likely to happen in December 2015, later than the markets are expecting to happen in September 2015. Therefore, the S&P will correspond to the markets’ expectations by moving up and down, but not by a lot. We don’t see the reward to risk to bet on the volatility of S&P this year any more. So far, we don’t see a likely chance that the Fed will bring the QE back again, even though the Fed might find itself having difficulty raising the rates a lot without doing much damage to the economy much engineered by credits and debts. That will be an interesting discussion later on.

Overall, the market moves based on what it thinks is right, and it is not equivalent to what is right a lot of times.