US Stock Market
The composite valuation indicator uses the secondary axis on the right.
US Bull-Bear
We revised the bull-bear market leading indicator to improve its responsiveness, reducing it to a composite of five key indicators. Currently, two of the five indicators signal risk-off, indicating a medium risk of a US bear market.
US Treasury Yield Curve
The 10-year/3-month Treasury yield spread has been positive for more than 120 days, and the S&P 500 is above its 12-month weighted moving average, confirming the risk-on signal.
US Fed Funds Rate
The last FOMC meeting kept the fed funds rate target range unchanged at 3.5%-3.75%. There have been no rate cuts for more than 75 days, so the signal has reverted to risk-on.
US Cass Freight Shipments Index
The Cass Freight Shipments Index 12-month moving average remains in a downtrend, 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
US stock pricing remains at extreme levels. We changed the composition of the Forward PE and Price-to-Sales indicators at the end of April 2026, so earlier highs are not directly comparable.
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 average 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.
US Value Buffett
Warren Buffett's favorite long-term measure of stock market valuation provides a stable valuation ratio largely unaffected by fluctuating profit margins.
The ratio of stock market capitalization to GDP is more than double its long-term average of 1.2. Buffett considers values above 2.0 to indicate that stock prices are dangerously high.
US Value 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 current advance on the CAPE ratio is the second-highest in history, behind only the 1999 peak during the Dotcom bubble at 44.2, with values far above their long-term average of 22.4.
US Value PEmax
The S&P 500 Price-Earnings (PE) ratio, based on the highest trailing earnings, remains high when compared with the long-term average of 17.3.
US Value Dow FPE
The Forward PE for stocks in the Dow Jones Industrial Average uses a 20% trimmed mean to mitigate the impact of outliers.
US Value Dow Price-to-Sales
We use a 20% trimmed mean of the Price-to-Sales ratio across the 30 stocks in the Dow to remove the most extreme readings that would otherwise distort the ratio.
A change in the Dow Jones index composition on June 29, 2026 may have contributed to the recent jump, when Alphabet Inc. (GOOGL) replaced Verizon (VZ) in the index.
Conclusion
The US Bull-Bear indicator, led by the transportation sector, indicates that the US economy is slowing but is not yet in a bear market, while the composite Stock Pricing indicator continues to warn that stocks are extremely over-priced.
ASX Stock Market
ASX Bull-Bear
The ASX Bull-Bear Leading Index signals a mild bear market.
Australian leading indicators have a 40% weighting in the ASX Leading Index, China 20%, and the US Leading Index carries the remaining 40%.
ASX NAB Forward Orders
NAB Forward Orders improved to zero 2026, but the 3-month moving average remains below zero, signaling risk-off.
ASX 200 Financials
The ASX 200 Financials Index (XFJ) is below its 50-week weighted moving average, and a breach of primary support at 9000 would signal risk-off.
ASX 200 Real Returns
The ASX 200 is above its 50-week moving average relative to Gold, but the long-term downtrend continues, with no higher troughs. The signal remains risk-off.
Performance of the ASX 200 Index relative to Gold (in Australian Dollars) reflects the real return on Australian Stocks.
ASX China OECD
The OECD Composite Leading Indicator for China eased to 98.10 in August. Values below 99.0 or a fall of more than 3 points from the preceding peak, as in 2008, signal risk-off.
China is Australia's largest export market, and the Chinese economy's performance directly affects the ASX.
ASX Stock Pricing
ASX stock pricing fell to 77.08% from 80.78% last week. Stocks are overvalued, and the decline is a bear signal.
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 stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.
ASX Value Buffett
Warren Buffett's favorite long-term valuation indicator compares stock market capitalization to GDP, providing a stable ratio with a long-term mean of 1.03.
ASX Value Price-to-Sales
The Price-to-Sales ratio for stocks in the ASX 20 uses a 20% trimmed mean to remove the highest and lowest readings, which tend to distort the average.
ASX Value FPE
The Forward Price-Earnings ratio for stocks in the ASX 20 uses a 20% trimmed mean to eliminate the highest and lowest readings. This avoids distortions of the average by outliers.
ASX Value PE
The All Ordinaries price-to-earnings (PE) ratio above 20 indicates high pricing. We need to ignore the 2020 distortion caused by low earnings.
The PE ratio is based on the latest trailing earnings (red below), but produces extreme readings if earnings per share (EPS) rises or falls sharply, as in 2008 or 2020, which is why we also calculate a PE based on the highest trailing earnings.
ASX Value PEmax
We use a Price-Earnings ratio based on the highest trailing earnings for the All Ordinaries Index to eliminate extreme readings when earnings fall sharply. Values above 16.0 indicate that stocks are overpriced, while values below 12 indicate low prices.
The ASX has volatile earnings due to the large resources sector, which necessitates the use of both price-earnings ratios — based on trailing earnings and highest trailing earnings — to provide a balanced view.
ASX Value DY
The All Ordinaries dividend yield is below its long-term mean of 4.1%, indicating values are on the high side. A fall below the 3.0% threshold would signal that stocks are extremely overpriced.
Note: Lower yields indicate higher values, so we reverse the z-score for the ASX dividend yield.
Conclusion
The ASX Bull-Bear indicator signals the early stages of a bear market, while the falling composite Stock Pricing indicator warns of a drawdown. China is on bear watch after NBS Manufacturing PMI fell below 50 in July, signaling a contraction.
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Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
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.