US Market Snapshot

We have revised the bull-bear market leading indicator to improve its responsiveness, stripping it down to a composite of five key indicators. At present, two of five indicators signal risk-off, indicating medium risk of a US bear market.

The plunging Cass Freight Shipments Index warns of contracting economic activity, signaling risk-off. The index highlights broad freight shipping levels in the mainstream economy, and a rise or fall of more than 3 basis points signals risk-on or risk-off, respectively.

US stock pricing declined to 95.82% from its high of 96.66% two weeks ago and the recent low of 91.79% eight weeks ago.

We use z-scores to measure each indicator's current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

The ratio of stock market capitalization to GDP retreated to 3.16 from its high of 3.24 last week, well above its long-term average of 1.2. Warren Buffett's favorite long-term measure of stock market valuation provides a stable ratio largely unaffected by fluctuating profit margins.

The Price-to-Sales ratio for the Dow Jones Industrial Average eased to 4.15 from 4.20 two weeks ago. We use a 20% trimmed mean of the Price-to-Sales ratio across the 30 Dow stocks to remove the most extreme readings that would otherwise distort the ratio.

Robert Shiller's CAPE ratio retreated to 39.80 from its peak of 41.33 last week. The recent peak was the second-highest in history, behind the Dotcom bubble in 1999-2000, and values are far above the long-term average of 22.4. CAPE smoothes out business-cycle effects by comparing the S&P 500 index to a 10-year average of inflation-adjusted earnings.