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US Stock Market
Two axes emphasize the weekly rises and falls in the composite valuation indicator, which 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 medium risk of a US bear market.
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.
The September FOMC meeting raised the fed funds rate target range to 3.75%-4.00%. The Fed Funds Rate signal is risk-on unless there has been a rate cut in the preceding 75 days.
US heavy truck sales slowed to 33,900 units in September from 36,500 units in August. The 12-month average eased to 32,900 from 33,000. However, it would need to reverse by 10% for the risk-off signal to reverse to risk-on.
Heavy truck sales reflect the transportation industry's confidence in the economic outlook. 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.
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. Buffett considers values above 2.0 to indicate that stock prices are dangerously high.
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 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 its long-term average of 22.4.
Conclusion
The US Bull-Bear indicator, led by the transportation sector, flags a bear market, while the composite Stock Pricing indicator warns 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 account for 40% of the ASX Leading Index, China for 20%, and the US Leading Index for the remaining 40%.
The ASX 200 Financials Index (XFJ) remains 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.
The 3-month moving average of private housing approvals is well above its 20-year moving average (dotted line below), indicating a strong uptrend in the Australian housing sector.
A cross of the 3-month MA (navy) below the 20-year MA (red) would signal risk-off.
The Chinese NBS Manufacturing PMI increased to 50.1 in September from 49.8 in August. Values below 50 indicate a contraction, while a fall below 49.0 would signal risk-off.
ASX Stock Pricing
ASX stock pricing bounced to 75.0% from 71.70% last week. Prices are still in a downtrend, but the decline is not a buy 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 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.
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.
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.
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 moderately over-priced. China is on bear watch after NBS Manufacturing PMI fell sharply to 49.2 in July, close to the risk-off signal.
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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.
