We are trialing a new format for the weekly market snapshots, combining the four major indicators into a single post. Your feedback would be welcome.
US Stock Market
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.
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.
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.
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.
Conclusion
The US Bull-Bear indicator, led by the transportation sector, flags the early stages of a bear market, while the composite Stock Pricing indicator warns that stocks are extremely over-priced.
ASX Stock Market
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%.
NAB Forward Orders improved to zero 2026, but the 3-month moving average remains below zero, signaling risk-off.
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.
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 Stock Pricing
ASX stock pricing fell to 74.78% from 80.78% three weeks ago. 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.
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 composite Stock Pricing indicator signals stocks are moderately over-priced.
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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.
