Category: US & Canada

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, and the one on the right reflects stock market drawdown risk.

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The declining Fed Funds target rate indicates monetary easing, a bearish sign for the economy, while the University of Michigan survey of current economic conditions also warns of recession. However, the other two composite indicators are bullish: the Chicago Fed index of national financial conditions signals strong liquidity, and S&P 500 smoothed momentum remains positive.

In June, employment in cyclical industries—manufacturing, construction, transportation, and warehousing—grew by 10K.

Cyclical Employment Growth

Unemployment declined to 4.1%, but weekly continued claims are trending upward, warning that the labor market is deteriorating.

Continued Claims & Unemployment Rate

Also, aggregate hours worked declined in June, with year-on-year growth slowing to 0.8%. GDP growth is likely to follow.

Aggregate Hours Worked

Stock Pricing

Stock pricing increased to 97.44, compared to a low of 95.04 eleven weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

The S&P 500 PE ratio is based on highest trailing earnings to eliminate distortions caused by sharp earnings falls during recessions. The current value of 28.5 is close to the 97th percentile of readings over the past fifty years.

S&P 500 PE of Highest Trailing Earnings

Conclusion

We are in the early stages of a bear market, with the bull-bear indicator at 60%. However, extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

The Bull/Bear indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

Weekly continued claims increased to 1.974 million on June 14, warning that the labor market is deteriorating. Unemployment was at 4.2% in May, but will likely rise in the next few months.

Continued Claims & Unemployment Rate

Stock Pricing

Stock pricing increased to 96.96, compared to a low of 95.04 ten weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

Robert Shiller’s CAPE compares the S&P 500 index against a ten-year average of inflation-adjusted earnings. CAPE increased to 37.29, approaching its December 2021 high of 38.31, which was only previously surpassed during the Dotcom bubble of 1999-2000.

Robert Shiller's CAPE

The previous high was 32.56, before the stock market crash of October 1929, shown on Shiller’s long-term chart below.

Robert Shiller's CAPE

Conclusion

We are in the early stages of a bear market, with the bull-bear indicator at 60%. Extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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S&P 500 breakout but no buy signal

Summary

  • The S&P 500 and Nasdaq reached new highs, but the Dow has not yet confirmed the breakout
  • Liquidity is strong, and long-term Treasury yields are softening
  • But the Conference Board Leading Economic Index warns of a recession
  • The dollar keeps falling, and demand for gold remains strong, flagging high levels of uncertainty

The S&P 500 broke resistance at 6100 to reach a new high. Expect retracement to test the new support level, but respect will likely signal a fresh advance.

S&P 500

The Nasdaq 100 ETF (QQQ) has also reached a new high.

Invesco Nasdaq 100 ETF (QQQ)

However, the Dow Jones Industrial Average lags and has not yet confirmed the new breakout.

Dow Jones Industrial Average

The broad Dow Jones US Index (DJUS) still lags the DJ World-x-US Index (W2DOW).

DJ US Index ($DJUS) & DJ World ex-US ($W2DOW)

Financial Markets

The Chicago Fed National Financial Conditions Index declined to -0.51 on June 20, signaling improving financial conditions.

Chicago Fed National Financial Conditions Index

10-year Treasury yields declined to 4.25%, providing further support for stocks.

10-Year Treasury Yield

Economy

The Conference Board’s leading economic index (LEI) declined to 99.0% in May. Six-month growth in the LEI (blue) fell to an annualized -5.4%, below the -4.1% that triggers a recession signal (marked in red).

Conference Board Leading Economic Index - Recession Signals

The black line on the above chart indicates negative growth in more than 50% of the LEI components over the past six months, which confirms the recession signal.

Conference Board Leading Economic Index - Components

Manufacturers’ new orders, excluding defense and aircraft, are one of the few LEI components that did not decline over the past 6 months. However, they show a steep long-term downtrend when adjusted for inflation (PPI for capital goods).

Manufacturing New Orders: Non-Defense Capital Goods Excluding Aircraft/PPI for Capital Equipment

New orders for consumer goods, adjusted by CPI, are also declining.

Manufacturing New Orders: Consumer Goods/CPI

Dollar & Gold

The dollar continues to weaken, with the US Dollar Index breaking support at 98 to confirm our target of 90.

Dollar Index

Gold is consolidating between $3,200 and $3,400 per ounce. Declining Trend Index peaks warn of secondary selling pressure, and another test of support at $3,200 is likely. Respect of support would signal another test of resistance at $3,500.

Spot Gold

Silver is consolidating in a narrow pennant at $36 per ounce. A retracement to test the new support level at $34 remains likely, but follow-through above $37 would signal another advance.

Spot Silver

Conclusion

A breakout of the Dow Jones Industrial Average above 45K would signal another advance for stocks, but the Conference Board Leading Economic Index warns of a recession. Manufacturers’ new orders for non-defense capital goods and consumer goods both display long-term weakness.

10-year Treasury yields softened to 4.25%, and financial conditions are easing, supporting stock prices. However, a declining dollar and strong gold price continue to warn of uncertainty. We don’t see this as a buy opportunity for investors; extreme stock valuation levels continue to warn of elevated risk of a significant drawdown.

Acknowledgments

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Gold, the Dollar and a big hole in the desert

Summary

  • Stocks rallied on news of a ceasefire between Iran and Israel
  • But celebrations may be premature
  • The dollar weakened, which is likely to boost demand for gold

The S&P 500 rallied to test resistance at 6100. Breakout would signal a fresh advance, but declining Trend Index peaks warn of selling pressure.

S&P 500

Uncertainty remains high.

The White House was quick to claim victory after the US airstrike on Iranian nuclear enrichment facilities. But claims that the subsequent ceasefire is the start of a new era of peace in the Middle East will likely prove premature.

A ceasefire is not a peace settlement. It’s a pause in hostilities that allows both parties to rearm and re-strategize.

A precision strike is nothing more than a big hole in the desert, the effectiveness of which can only be determined by subsequent Iranian actions.

The damage assessment reported by CNN is premature, but it does raise some interesting questions.

The assessment, which has not been previously reported, was produced by the Defense Intelligence Agency, the Pentagon’s intelligence arm. It is based on a battle damage assessment conducted by US Central Command in the aftermath of the US strikes, one of the sources said.

The analysis of the damage to the sites and the impact of the strikes on Iran’s nuclear ambitions is ongoing, and could change as more intelligence becomes available.

….Two of the people familiar with the assessment said Iran’s stockpile of enriched uranium was not destroyed. One of the people said the centrifuges are largely “intact.” Another source said that the intelligence assessed enriched uranium was moved out of the sites prior to the US strikes. (CNN)

If the stockpile of enriched uranium were moved or otherwise not destroyed, how would this affect Israel’s security?

The only way to finish this is with boots on the ground. Neither Israel nor President Trump is likely to commit to that.

In the Treasury market, 10-year yields declined to 4.3%, easing the pressure on stocks.

10-Year Treasury Yield

However, the dollar continues to weaken, with the US Dollar Index testing support at 98. A breach would confirm our target of 90.

Dollar Index

The chart below shows how Brent crude and the dollar moved contra-cyclically, with the dollar weakening when crude oil prices rose, and vice versa.

However, that changed shortly before Russia’s full-scale invasion of Ukraine in 2022, the dollar strengthened despite a spike in energy prices, diverging from past behavior as investors sought safety. The divergence continues, with the dollar weakening while crude oil prices are falling. The dollar’s role is under threat.

Brent Crude & USD Index for Advanced Economies

Investors globally appear to be gradually reducing their exposure to dollar-denominated assets, driving the greenback down to its lowest level against a basket of major currencies in three and a half years….

According to Bank of America’s FX strategy team, European “real money” investors – institutions like pension funds and insurance companies – are the main drivers of the dollar’s selloff in the second quarter, slashing their dollar positioning to the lowest since 2022 in a matter of weeks.

But the story might not be so straightforward…. research shows that most of the dollar’s average daily declines in the last few months have come in Asian trading hours, suggesting Asian holders of U.S. bonds may also be increasing their dollar hedges. (Reuters)

Demand for gold remains strong as the dollar weakens, with the metal finding support at $3,300 per ounce. Respect of this level would signal another test of resistance at $3,400.

Spot Gold

Conclusion

Stocks have rallied, but uncertainty in the Middle East remains high.

Long-term Treasury yields have softened, but the dollar continues to weaken, reflecting uncertainty over the US role in the global monetary system.

Private investors have replaced central banks as major investors in US Treasuries. They are far more price sensitive, and both European and Asian investors are increasingly hedging their dollar positions, expecting dollar weakness.

A weakening dollar is expected to boost demand for gold.

Acknowledgments

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US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The unemployment rate remains at a low 4.2% in May, but weekly continued claims climbed to 1.945 million on June 7, warning that the labor market is deteriorating.

Continued Claims & Unemployment Rate

However, monetary conditions are easing. The Chicago Fed National Financial Conditions Index declined to -0.52 on June 13, signaling improved financial conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased slightly to 96.30, compared to a low of 95.04 nine weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

Conclusion

We are in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, indicating risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator is at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

The University of Michigan index of current economic conditions improved to 67.6 in June, but remains deep in recession territory (below 100).

University of Michigan: Current Economic Conditions

Stock Pricing

Stock pricing eased slightly to 96.33, compared to a low of 95.04 eight weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

 

Stock market capitalization declined to 2.60 times GDP in the first quarter of 2025. Warren Buffett’s favorite long-term valuation measure reflects an extreme reading compared to his fair value rule-of-thumb of 1.0 and a fifty-year average of 1.16.
Stock Market Capitalization to GDP

Conclusion

We are in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing remains extreme, indicating risk of a significant drawdown.

Acknowledgments

Notes

Posted on

Dollar warns of tipping point

Summary

  • The dollar is weakening due to capital outflows from the US
  • Long-term Treasury yields are declining in anticipation of Fed rate cuts
  • However, capital outflows are expected to lift long-term rates and slow economic growth in the years ahead
  • The weaker dollar is expected to depress stock prices and boost demand for gold

The US Dollar Index broke support at 98, signaling another decline with a target of 90. Trend Index peaks below zero warn of strong selling pressure.

Dollar Index

A low CPI print boosted support for Treasuries, with the 10-year yield declining to 4.36%.

10-Year Treasury Yield

However, the long-term chart below warns of a bond bear market. After more than three decades of capital inflows into US financial markets, international capital flows have reversed in anticipation of President Trump’s trade policies. Narrowing the trade deficit will likely slow the inflow of capital into the US, raising long-term interest rates and slowing economic growth.

10-Year Treasury Yield

The sharp increase in federal debt, from 55% of GDP in 2008 to 114% today, limits policy options. Reducing the fiscal deficit from its current 6.5% to a more sustainable 3.0% would likely cause a similar contraction in economic growth, tipping the economy into recession.

Federal Debt to Nominal GDP (%)

The Fed is also limited in its monetary policy options because of inflationary pressures from Trump’s trade policy, if it were to cut rates, and the adverse effect on the fiscal budget if it allowed long-term interest rates to rise.

The weakening dollar will likely accelerate the capital outflow from US financial markets, increasing the upward pressure on long-term interest rates and downward pressure on stocks. It is also expected to boost demand for gold as an alternative.

Gold climbed to above $3,400 per ounce, signaling another test of resistance at $3,500. A breakout above $3,500 would strengthen our target of $4,000 by the end of the year.

Spot Gold

According to the IMF, the percentage of gold in international reserves increased by a record 4.0% in 2024, with a similar decline in US Dollar holdings. However, official gold purchases are only half the picture.

Global Reserves

Jan Nieuwenhuijs conducted extensive research, along with the World Gold Council, on unofficial gold purchases by China and Saudi Arabia. He estimates that this back-door gold accumulation amounts to 3,500 tonnes since 2010, in addition to the 5,500 tonnes of official purchases.

Central Bank Gold Purchases

The S&P 500 is headed for a test of its previous high at 6100, but a weakening dollar disguises its true performance. When measured against gold, the index has declined more than 20% in real terms over the past 12 months.

S&P 500

Conclusion

The weakening dollar warns of capital outflows from US financial markets. A narrowing of the trade deficit is expected to reverse the three-decade-long bull market in bonds, lifting long-term interest rates and reducing growth.

The move is bearish for stocks in the long term, with expected higher interest rates and lower earnings growth. However, contracting growth will likely reduce interest rates next year as the Fed loosens monetary policy to stimulate growth. Both long and short-term scenarios are bearish for stocks.

Gold will likely be boosted by a weakening dollar and increased central bank buying as US dollar reserves are replaced with bullion. A breakout above resistance at $3,500 per ounce would strengthen our target of $4,000 by the end of the year, but the long-term outlook remains bullish.

Acknowledgments

Posted on

US Market Leading Indicators

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator remains at 60%, with two of five leading indicators signaling risk-off:

Bull-Bear Market Indicator

Employment in cyclical sectors—manufacturing, construction, and transport and warehousing—remains strong at 27.8 million, with no sign of the typical contraction that precedes a recession.

Employment in Cyclical Sectors: Manufacturing, Construction, and Transport & Warehousing

However, the 12-month average of heavy-weight trucks declined to 39.0K units in May, just a smidgen from a 38.7K bear signal.

Heavy Truck Sales

Stock Pricing

Stock pricing increased to 96.70, compared to 95.04 seven weeks ago and a high of 97.79 percent in February. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

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

Conclusion

We remain in the early stages of a bear market, with the bull-bear indicator at 60%. Stock pricing is extreme, indicating risk of a significant drawdown.

Acknowledgments

Notes

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