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 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 CAPE
Robert Shiller's CAPE smooths out business-cycle effects by comparing the S&P 500 index to a 10-year average of inflation-adjusted earnings.
The recent advance on the CAPE ratio is the second-highest in history, behind only the 1999 Dotcom bubble of 44.2. Values are far above their long-term average of 22.4.
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 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 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 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 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 China NBS Manufacturing
The Chinese NBS Manufacturing PMI plunged to 49.3 in October from 50.1 in September, missing market expectations of 50. Values below 50 indicate a contraction, while a fall below 49.0 signals 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.
Conclusion
The ASX Bull-Bear indicator signals the early stages of a bear market, while the composite Stock Pricing indicator signals stocks are over-priced. 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.
