Political  Calculations

Yesterday's 3.4% gain in the S&P 500 marked the biggest gain in a month of gains. Since 3 October 2011, when the S&P closed just below 1100 at 1099.23, the S&P 500 has risen 16.9%, or 185.36 points, through the end of 27 October 2011 to close at 1284.59.

What has happened during the month of October 2011 is that investors setting today's stock prices have shifted their focus forward in time from the second quarter of 2012 to the third quarter of 2012. The market has risen in response to that shift in forward-looking focus.

S&P 500, 3 October 2011 through 27 October 2011

As you can see in the chart above, stock prices have pretty consistently trended upward during the month. And although the European debt deal is being credited for the one day gain, that doesn't explain the rise in stock prices over the past month, given the uncertainty surrounding the progress in working toward the deal announced on 27 October 2011.

And if we look at the change in the rates of growth of both stock prices and the S&P 500's underlying dividends per share, we see that average stock prices during October 2011 would appear to be below the level that the change in dividends projected for the third quarter of 2012 would put them (remember, investors always look forward in time!):

Accelerations of S&P 500 Average Monthly Index Value and Trailing Year Dividends per Share (and Futures)* as of 28 October 2011

Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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