The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.
Bull/Bear Market
Our Bull/Bear Market indicator remains at 60%, with two of five leading indicators signaling risk-off:
The National Financial Conditions Index from the Chicago Fed dipped to -0.606, signaling monetary easing.
However, outside of the 2022 COVID pandemic, the University of Michigan index of current economic conditions is at the lowest recorded level since its inception in 1960.
Also, continued unemployment claims rose to 1.92 million on May 17, a 39% increase in the four-week moving average from its low in June 2022. However, the unemployment rate remains at 4.2% and does not warrant serious concern until it reaches 5.0%.
Stock Pricing
Stock pricing increased to 96.51, compared to 95.04 six weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.
Conclusion
We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, with elevated risk of a significant drawdown.
Acknowledgments
- Multpl.com: Shiller PE Ratio
- S&P Global: S&P 500 Sales and Earnings Estimates
- University of Michigan: Survey of Consumers
- Federal Reserve of St Louis: FRED Data
- Bureau for Economic Analysis: Motor Vehicles Data
Notes
- See Managing Risk to learn more.
- See Bull-Bear and Stock Valuation for more on our composite market indicators.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.
Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.