US Stock Market
The Bull-Bear Market indicator (blue below) uses the left-hand scale, while the composite valuation indicator (red) uses the scale on the right.
US Bull-Bear
We revised the bull-bear market leading indicator at the end of April 2026 to improve responsiveness by 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 October FOMC meeting held steady, with the Fed funds rate target range unchanged at 3.75%-4.00%. The next meeting on December 8-9 is expected to hike rates by 25 basis points. The signal remains risk-on unless there has been a rate cut in the preceding 75 days.
US Cyclical Employment
Cyclical employment jumped to a 25-year high of 27.684 million in October from 27.625 million in September, indicating robust economic growth. A 300,000 decline from the September 2024 peak of 27.671 million would signal risk-off.
US Heavy Truck Sales
Heavy truck sales reflect the transportation industry's confidence in the economic outlook. The 12-month moving average increased to 33,900 from 33,200 in September. A 10% reversal from the May low of 32,500 would signal risk-on.
A fall of more than 10% below the preceding peak signals risk-off, while a 10% rise above a trough indicates risk-on.
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 stock market capitalization-to-GDP ratio is more than double its long-term average of 1.2. Values above 2.0 indicate that stock prices are dangerously high.
US Value PEmax
The S&P 500 Price-to-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 transportation sector suggests parts of the US economy are contracting but this is offset by robust construction and heavy engineering due to the AI buildout. The composite Stock Pricing indicator continues to warn that stocks are extremely overvalued.
ASX Stock Market
ASX Bull-Bear
The ASX Bull-Bear Leading Index improved to 64%, indicating a Mild Bull Market, after the ASX 200 signaled an uptrend relative to Gold (in Australian Dollars).
Australian leading indicators account for 40% of the ASX Leading Index, China for 20%, and the US Leading Index for the remaining 40%.
ASX 200 Financials
The ASX 200 Financials Index (XFJ) is above its 50-week weighted moving average, testing resistance at 10,000. A breach of primary support at 9,000 would signal risk-off.
ASX 200 Real Returns
Performance of the ASX 200 Index relative to Gold (in Australian Dollars) reflects the real return on Australian Stocks.
The ASX 200 has formed a higher trough above its 50-week moving average relative to Gold, signaling an uptrend. The signal will remain risk-on until a lower peak is accompanied by a fall below the 50-week weighted moving average.
ASX Housing Approvals
The 3-month moving average of private housing approvals is well above its 20-year moving average (dotted line below), indicating an uptrend in the Australian housing sector.
A cross of the 3-month MA (navy) below the 20-year MA (red) would signal risk-off.
ASX Stock Pricing
ASX stock pricing jumped to 81.19% from 71.70% four weeks ago. Prices are still in a gradual downtrend.
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 average to a percentile. The higher that 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 PE ratio based on the latest trailing earnings (red below) produces extreme readings if earnings per share (EPS) rise or fall sharply, as in 2008 or 2020. We calculate a PE based on the highest trailing earnings to provide an alternative viewpoint.The All Ordinaries price-to-earnings (PE) ratio above 20 indicates high pricing, but we need to ignore the 2020 distortion caused by low earnings.
ASX Value PEmax
The ASX has volatile earnings because of its large resources sector. We use two price-earnings ratios, one based on trailing earnings and the other on the highest trailing earnings, to provide a balanced view.
The Price-Earnings ratio based on highest trailing earnings for the All Ordinaries Index eliminates extreme readings when earnings fall sharply. Values above 16.0 indicate stocks are overpriced, while values below 12 indicate they are cheap.
ASX Value DY
The All Ordinaries dividend yield is below its long-term mean of 4.1%, suggesting values are high. 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 increased to 64%, indicating a Mild Bull market, after the ASX 200 commenced an uptrend relative to Gold in Australian Dollars. However, China is back on bear watch after the NBS Manufacturing PMI contracted to 49.3 in October.
The composite Stock Pricing indicator is rising, but the longer-term downtrend warns of a drawdown.
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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.