US Market Snapshot

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

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.

Cyclical Employment

Cyclical employment eased to 27.533 million in June, down from 27.540 million in May, 139K below the previous peak of 27.671 million in September 2024. A 300K decline from the preceding peak would signal risk-off.

Heavy Truck Sales

Heavy truck sales increased to 35,900 units in June, up from 34,900 in May, but the 12-month average fell to 32,300, so the signal remains at risk-off. Heavy truck sales reflect the transportation industry's confidence in the economic outlook. A fall of more than 10% below the preceding peak signals risk-off, while a 10% rise above a trough indicates risk-on.

Stock Pricing

US stock pricing jumped to a new high of 97.22, up from 95.72 percent last week, and compared to the recent low of 91.79 twelve 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.

Shiller CAPE

Robert Shiller's CAPE smoothes out business-cycle effects by comparing the S&P 500 index to a 10-year average of inflation-adjusted earnings. The CAPE ratio retreated to 39.46, down from the recent peak of 41.33 five weeks ago. The current advance is the second-highest in history, behind only the Dotcom bubble in 1999-2000, with values far above their long-term average of 22.4.

Conclusion

The Bull-Bear indicator suggests the US economy is slowing, but not yet in a recession.

Pricing is growing more extreme, increasing the risk of a significant drawdown.

Acknowledgments

• Prof. Robert Shiller: CAPE 10 Data
• 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

Managing Risk

To find out more, go to Managing Risk on the top menu, or see:

• US Bull-Bear Market Leading Indicator
• US Stock Market Pricing

Colin Twiggs

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.