We became bullish about stocks once mark-to market accounting was fixed in March 2009. We were also bullish after COVID-19 hit. We got called "perma-bulls," but as we look back at the low interest rates and healthy profit growth, we don't see any other course to have taken.

We were still bullish at the end of last year, forecasting 5,250 for the S&P 500 and 40,000 for the Dow Jones Industrial Average for 2022. As always, we used our Capitalized Profits Model to assess fair value for the stock market. The model starts with the government's measure of economy-wide corporate profits and uses the yield on the 10-year Treasury Note to discount those profits.

The yield on the 10-year Treasury finished last year at about 1.5%, which made the stock market look extremely attractive. But to be cautious – and because we knew the 10-year Treasury yield was being held back by excessively loose monetary policy – we used a 2.5% yield to discount profits, instead. Using a 2.5% yield suggested fair value for the S&P 500 was 5,250, which became our forecast for the market at the end of 2022.

Yes, we were also forecasting high inflation and knew monetary policy would eventually have to get tight, but we thought the Fed would be very slow in shifting toward a more appropriate monetary policy.

By early May, with the Fed getting more assertive and the 10-year Treasury yield at about 3.1% (well above our "cautious" 2.5%), we reconsidered our stock market forecast and downgraded it to 4,900 for the S&P 500. Our thinking was that although the Cap Profits Model was saying we were already at fair value, that the Fed would still be relatively loose and a recession was further away than most investors thought. In turn, the lack of a near-term recession would allow equities to climb a wall of worry.