The probability is high that the Standard & Poor’s 500-Stock index (S&P 500, S&P) will decline by 79.95% from its 4818.62 all-time high in January 2022, to 965.82.  The precise percentage decline for the S&P is because the index has a history of declining lower after its real (inflation adjusted) dividend yield goes to negative from positive. The S&P 500’s dividend yield has been negative since February 2021 and the level the index must go to for the yield to become positive is 965.82.

The table below depicts the S&P 500’s real dividend yield for the first four months of 2022, which is calculated by subtracting inflation from the nominal yield.

Declines of the S&P 500 to a relevant level can be steady and gradual, or can be violent. From January 1968 to August 1982 was the S&P’s most recent gradual decline from a negative to a positive yield. Not surprisingly, most of the past corrections were violent and became infamous. Below are the four most recent violent corrections that resulted in the dividend yield going to positive from negative:

  • September 2017 to December 2018 Christmas Eve Low
  • December 2009 to June 2010 May 2010 Flash Crash
  • August 2002 to November 2008 Lehman Bankruptcy & 2008 Great Recession
  • November 2019 to March 2020 Coronavirus Pandemic Crash

The table below contains the S&P 500’s current month and prior three month’s price targets.  Targets for S&P to decline by 78.10% to 81.03% are based on the index’s real negative dividend yields for the respective months. AlphaTack.com adjusts targets monthly to reflect the published Consumer Price Index (CPI) utilized to calculate the S&P’s real dividend yield.

The S&P 500’s decline from its all-time high, to the highest target represented in the table above of 1053.48, a decline of 78.1%, would likely coincide with the U.S. entering its 3rd Great Depression ― a first since the 1929 –1938 Great Depression. Therefore, my “First Great Depression since 1929, Unavoidable” article is a must read, available at AlphaTack.com.

AlphaTack.com was founded to educate investors about the risks they face because of the secular bull market, which began at the S&P 500’s March 2009 low and ended at the index’s all-time January 2022 high. The bull was replaced by a secular bear. Based on the statistics for all prior secular bears, the S&P will decline from 47% to 85%, and will not reach a bottom until 2030 ― at the earliest. AlphaTack, owned and operated by Dynasty Wealth, LLC, embraces the slogan “Growing Assets Against the Wind”, and has developed strategies and proprietary algorithms enabling investors to grow their portfolios during recessions, depressions and volatile stock market conditions.

The table below contains all of the periods from 1899 to 1982, within which the S&P 500’s real dividend yield was negative for a minimum of 12 consecutive months. Additionally, to qualify, a period must have had a minimum negative dividend yield of −4.75%. The S&P’s highest negative dividend of −17.1% occurred during the 3/1916 to 12/1920 period. (The S&P’s cumulative loss for the qualifying periods was −148.97%.)

The simple methodology of “sell the S&P 500 when the index’s yield goes to negative from positive”, as depicted in the table above, was accurate for seven of the eight (87.5%) qualifying negative dividend yield periods. The only period for which the negative yield did not result in a loss for the S&P was from 1909 to 1910. However, the gain was only 1.36%. In summation, the probability for a loss was 87.5% and the probability of not experiencing a meaningful gain was 100% for those who were invested during all eight of the S&P’s negative yield qualifying periods from 1899 to 1982.

The table below contains the S&P 500’s notable positive and negative minimum 12-month dividend yield (Div/Y) periods from 1920 to 2021.  For those periods within which the S&P 500’s dividend yield was positive, the S&P produced gains as high as 42.8% per annum. For the S&P’s Negative Dividend Yield (Div/Y) periods, the index’s returns ranged from a decline of -0.03%% to a gain of 5.48% per annum. The fourteen year period from January 1968 to August 1982 is noteworthy because inflation as high as 14.7% encompassed the entire period. The S&P lost an average of 0.03% per month for the 175-month period. April 2022, was the S&P 500’s 15th consecutive negative-yield month since the dividend yield went from positive to negative in February 2021.

Research findings also indicated a high correlation between the S&P 500 reaching a significant bottom and its dividend yield going from negative to positive.  The table below contains the S&P’s four most recent infamous bottoms. The 1982, 2008, 2018 and 2020 dividend yield status changes from negative to positive, coincided with- or just-prior-to infamous S&P 500 bottoms.  August 1982 is a well-known secular bear bottom.  The most memorable crash, since 1929, occurred when Lehman Brothers went bankrupt in September 2008. The decline for the S&P enabled the dividend yield to become positive in November of 2008.  The “Christmas Eve low” for the year 2018 is yet another classic bottom that will live in infamy.  Finally, the S&P 500’s dividend yield became positive upon the index declining to its March 2020 crash low at the beginning of the Coronavirus Pandemic.

Overwhelmingly, findings from my research of the S&P 500’s dividend yields from 1871 to 2022 support that since the index’s inception the S&P’s Div/Y status-changes have been an extremely valuable indicator to determine the following:

  • When the S&P 500 or stock market is near a major bottom, and…
  • When to be in or out of the S&P 500 for extended periods.  For those minimum 12-month periods, within which the dividend yield was negative, the index either declined or had minimal per annum gains.  For those qualifying periods, within which the dividend yield was positive, the S&P’s average gains were as high as 42.8% per annum.  

These findings led to my hypothesizing how an indicator could have been ― and continues to be ― extremely accurate and reliable for three centuries. The only logical answer was the generational investor.

Generational investors have influenced the stock market’s direction, and extreme highs and lows since the 19th century, and they are among the world’s largest, and most disciplined long-term investors.  The table below depicts the generational investor groups. Their aggregate assets were equivalent to 129% of the $53.4 Trillion aggregate value of U.S. stock market at 12/31/2021.

Generational investors were the first and only institutional investors, from 1871 to 1924, when the first U.S. mutual fund was established.  Because they experienced the extreme CPI volatility, extended periods of inflation followed by periods of extreme deflation from 1871 to 1932, they were forced to become disciplined to survive. The disciplines the generational investors instilled have remained in place for the last 150 years. Below are their core disciplines utilized to eliminate and/or reduce risks.

Core Disciplines:

Build cash reserves when S&P 500 dividend yield becomes negative, by implementing the following;

  • Sell non- dividend-paying holdings to build cash reserves
  • Accumulate cash received from dividends
  • Sell dividend-paying holdings when S&P 500 at or near all-time high

The bottom line is, that whenever the S&P 500’s dividend yield is negative, the generational investor is not a net buyer of stocks and is more likely to be a net seller. Instead, the generational investor has the discipline to maintain cash reserves and to own short term U.S. government guaranteed bonds until a correction takes the S&P 500 to a positive yield valuation. Thus, when the index’s yield is negative there are no floors between the level it is trading at and the level the index must go to for the dividend yield to become positive. Because of this phenomenon, whenever the index has a negative dividend yield it is at extreme risk for a violent correction; and, especially should the negative yield coincide with S&P 500 at, or near an all-time high. This was the case that precipitated the following violent corrections:

  • September 2008 to March 2009
  • May to June 2010
  • January to April 2018
  • October to December 2018
  • February to March 2020

For more about generational investors and how their core disciplines evolved from the extreme CPI volatility in the late 19th and early 20th centuries, see my 05/__/2022 article, “Until Generational Investors Buy, S&P 500 Bottom Not in Sight!

The conclusion drawn from my research of the S&P 500’s dividend yields from 1871 to 2022, overwhelmingly supports the status of the Div/Y being the key indicator of when to be in or when to be out of the S&P for extended periods. During periods with a minimum of 12 months, when dividend yields were negative, the index either declined or had minimal per annum gains. Statistics further confirmed that during qualifying periods, within which the dividend yield was positive, the S&P’s average per annum gains were as high as 42.8% per annum.

The Div/Y indicator enables decades-long asset-class allocation decisions, and when to be in or out of the stock market.

Further research was conducted on those less than 12-month periods, during which the S&P 500’s dividend yield was negative. From 1871 to 2022 there were 41 single-month or multi-month periods during which the S&P’s yield fluctuated from positive to negative. Positive-to-negative yield status changes, and vice versa, could prove to be temporary, and thus needed to be eliminated.  The goal was to reduce asset-class allocation volatility for those periods within which a yield status-change had a higher probability of being temporary.

Findings from the research resulted in the development of AlphaCenturi, a rules-based algorithm. AlphaCenturi reduces the asset-class reallocation volatility when the S&P 500’s dividend yield (Div/Y) status changes from positive to negative and vice versa have a high probability of being temporary. For example, had AlphaCenturi been available, it would have disregarded the Div/Y’s  January 1966 and May 2014 sell-the-S&P-500 status changes when the S&P’s dividend yield went from positive to negative. From January to February 1966 and from May to August 2014, the S&P’s dividend yield had reverted to positive from negative. Losses, which resulted from the volatility, were 3.6% and 5.4% respectively.

AlphaCenturi which has a 79.6% long and short signals’ success ratio from 1871 to 2020 covering three centuries, generated a sell signal for the S&P 500 in June of 2021 (4302.43). As of April 30, 2022, the S&P had declined by 3.8%. The Div/Y Indicator, at end of April 2022, had a loss of 8.4% since it went from positive to negative for the S&P in February 2021 (3883.43).

From 1871 to 2022, AlphaCenturi had 49 long-to-short or short-to-long signal changes. The table below contains all of AlphaCentui’s signals which had durations of 100 or more months.

Since AlphaCenturi‘s long/short signal changes have averaged 3.05 years from 1871 to 2022 a comparative analysis was conducted.  The mandate was to determine the returns from selling the S&P 500 short versus investing the sale proceeds into short-term savings accounts, interest-bearing notes, etc., at an average 2.4% per annum interest rate.  The gains from following the more conservative interest-bearing instruments instead of shorting the S&P 500 strategy were 101% higher than following a long/short strategy.  The chart below depicts that $100 invested into AlphaCenturi‘s S&P 500 Long/2.4% strategy in 1871 (hypothetically), increased to $1,079,789.00 in 2021: $100 invested into a buy and hold the S&P 500 strategy, only increased to $96,910.00 for the 147-year period.

Because AlphaCenturi is either long or short the S&P 500 for 365 days a year it operates similarly to another of AlphaTack’s core algorithms, the Bull & Bear Tracker (BBT). The BBT was developed in 2018 from my research of all market crashes since 1929.  The chart below depicts that the BBT gained 19.3% vs. the S&’s decline of -13.62% during the first four months of 2022.  From 2018 to April 30, 2022, the algorithm gained 222% vs. 51% for the S&P 500. The BBT’s success ratio average since 2018 is 55%. This illustrates that the BBT is an excellent alternative to a 2% per annum bond for those periods that AlphaCenturi is short the S&P. (Access to the BBT is exclusively available via AlphaTack.com.)

The buy and sell signals for both Bull & Bear Tracker (BBT) and AlphaCenturi are utilized for when investors should be in or out of the S&P 500. Differences between the two algorithms that monitor the S&P, follow:

  • Bull & Bear Tracker predicts direction S&P short term (average 4.5 days)
  • AlphaCenturi predicts S&P direction long term (average 3.06 years)

With algorithms that deliver a one-two punch, AlphaTack.com is the only provider of a comprehensive strategy to enable a portfolio to increase during cyclical and secular bear markets. AlphaCenturi indicates when an investor must be defensive or offensive over the long haul. The Bull & Bear Tracker enables a portfolio to grow by leveraging the short term volatility, which occurs regardless of a market’s macro or long-term direction.

To learn more about AlphaCenturi and the success ratios for its signals read “Algorithm Proven Over Three Centuries – Short S&P 500”.  To understand the development-cycle and the efficacy of an algorithm developed from backtests, [click here].  AlphaCenturi’s signals are exclusively available through AlphaTack.com, a provider of proprietary intelligence to professional and generational investors ― especially to the family offices that preserve and grow a family’s capital for future generations.

IN SUMMARY

The probability is high that the S&P 500 will decline by 79.95% from its 4818.62 high of January 2022, to as low as 965.82. Based on its past history dating back to 1871, the index will gravitate to 965.82, the level that will enable its real (inflation-adjusted) dividend yield to go to positive from negative. Additionally, the real yield has been negative for 15 consecutive months ― from February 2021 through April 2022.

However, there are three possibilities, or any combination thereof, for the S&P 500 dividend yield to go from negative to positive without the index having to decline by as much as 79.95%, provided the following were to occur…

1. The S&P would require all 500 of its member companies to pay a dividend, including Tesla, Google, Amazon and Meta (formerly Facebook) that have never paid dividends
2. Inflation declines from 8.3% in April 2022 to 1.3%
3. The Federal Reserve quickly and significantly raises its discount rate to induce a recession, it would result in the following:

a. The S&P 500 descending to 2799.61, a 41.9% decline from its January 4, 2022 high.  The precise lower level is based on the index having a high probability of bottoming at its AlphaTack PE (AT/PE) multiple of 13.4.  The AT/PE multiple of 13.4 is the index’s average of all of its AT/PE’s at its extreme lows from 1921 to 2020.  For more on the proprietary AT/PE which is the only PE multiple which adjusts for inflation and which can calculate a negative PE see “Due to inflation’s effect on PE, S&P 500 to decline by at least 41.9%”, March 20, 2022;  and,

b. Inflation declining sharply, and possibly, a bout of deflation that would immediately increase the S&P 500’s real dividend yield to become positive. To date, the S&P 500’s highest real (inflation-adjusted) dividend yield of 24.9% coincided with the June 1932 deflation rate of -9.93%.  For the reasons stocks and bonds perform best during deflationary periods see, “Until Generational Investors Buy, S&P 500 Bottom Not in Sight!”

The Federal Reserve could potentially thread the proverbial needle by inducing a moderate recession.  The moderately lower S&P 500, from its May 10, 2022 low of 3858.87 combined with a sharp decline in inflation, could enable the S&P’s dividend yield to become positive at a much higher level than 965.82.  The positive yield would enable the index to leverage the buying power of the world’s generational investors.  Again, please see the article “Until Generational Investors Buy, S&P 500 Bottom Not in Sight!”

The most desirable of the above alternatives would be for S&P 500 to require all of its member companies to pay a dividend. The least desirable would be for the Federal Reserve to induce a recession. The recession would result in the S&P immediately declining to 2799.61, a 41.9% decline from its January 4, 2022 all-time high of 4818.62. The projected percentage decline coincides with the index’s average PE multiple at extreme historic lows from 1920 to 2022. (Please see my PE article cited above.)

The probability would be high for anything close to a 41.9% decline to cause a drastic reduction of consumer and capital spending, which are the root causes for a recession to transform into an economic depression. Please see “First Great Depression Since 1929, Unavoidable” article that covers the common denominators shared by the 1st (1920–1921) and 2nd (1929–1938) and the soon to occur 3rd U.S. Great Depression. The article also includes five policy mistakes made by the Federal Reserve from 1920 to 1931, which led to the following:

  • 1st U.S. (1920–1921) Great Depression
  • Bubble high for the S&P 500 in 1929
  • Extension of 2nd U.S. (1929–1938) Great Depression, and its severity

While the first U.S. Great Depression since that of 1929–1938 is unavoidable, by acting quickly to induce a recession the Federal Reserve could mitigate the severity and reduce the duration of a 3rd U.S. Great Depression. The only remaining questions are how severe and how long the 3rd U.S. Great Depression will be?

Additionally, based on my research of secular markets and price-to-earnings (PE) multiples at their peaks, the S&P 500 secular bull market that began in March 2009 ended at its January 2022 high of 4818.62.  Assuming, the S&P’s new secular bear market behaves similarly to its prior secular bears in the table below, the index will decline by 47% to 85%.

The secular bear market’s 47% to 85% decline statistics in the tables above and below fully support AlphaTack’s projections in the table below. The table depicts a decline of 41.9% to 79.95% for the S&P 500 from the index’s January 2022 all-time and secular bull high.

PLEASE NOTE: AlphaTack’s decline projections of 41.9% to 79.9%. are based on its two S&P 500 proprietary, i.e., AT/PE (price earnings multiple) and Div/Y (dividend yield) inflation-adjusted valuation metrics. AlphaTack’s minimum decline projections assumes that the S&P 500 will bottom at 13.4, which is the average AT/PE at all of the index’s extreme lows from 1921 through 2020. The maximum decline projection is based on the level that the S&P 500 must descend for its dividend yield (Div/Y) to go from negative to positive.

The probability for a substantial draw down of the S&P 500 by end of 2022 is high: such a correction will coincide with the beginning of a U.S. recession. The inability of the index to recover quickly and sufficiently from headlines reporting such a significant decline will increase the probability that a recession would rapidly transform into the 3rd Great U.S. Depression. Again, please see “First Great Depression Since 1929, Unavoidable” 05/__/2022.

All investors should immediately begin to prepare for the inevitable extreme volatility of the U.S. stock market, economy and CPI by doing the following:

  • View 90/10 crash protection strategy video at bottom of page
  • View AlphaTack.com’s secular bear market educational videos at bottom of the page
  • Liquidate all blue-chip shares, mutual funds and Exchange Traded Funds
  • Liquidate commercial real estate

Cash should be invested in any or all of the following:

  • U.S. government 2-year treasury notes*
  • Long/short index hedge funds**
  • Hedge/Venture capital funds**
  • Private technology startup and early-stage companies**
  • Select microcap companies and penny stocks**

*View the 90/10 Crash Protection video  to understand why
**Available through AlphaTack‘s strategies via referral to advisors and funds.

Never more salient and urgent than today, the
AlphaTack.com slogan
Growing Assets Against the Wind”…
reflects the wisdom inherent in our philosophy.