Tag: Chicago Fed National Financial Conditions Index

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Xi Has Trump Over a Barrel

Key Points

  • Producer prices jumped by 6.0% over the 12 months to April, warning of higher consumer prices ahead.
  • 10-year Treasury yields responded with a rise to 4.48%.
  • Xi Jinping has the upper hand in negotiations with Donald Trump because of China’s large strategic oil reserves, which they could use to keep prices in check.
  • The S&P 500 reached a new high at 7444, while the Dow is consolidating in a bullish narrow range below 50,000.
  • The Main Street US economy is under the pump, but Semiconductors, Construction, and Heavy Electrical industries are booming due to datacenter spending.
  • Lithium, Copper, and Critical Materials show signs of buying pressure, but Uranium is lagging.

Producer prices jumped by 6.0% for the 12 months to April 2026, driven by rising fuel prices and transportation costs. The cost of rising fuel prices is spreading through the economy, with the core index (excluding food and energy) leaping to 5.2%. The chart below shows the impact of energy shortages on producer prices after Russia’s full-scale invasion of Ukraine in 2022. We expect the impact of the Strait of Hormuz closure to be more severe.

Producer Price Index (PPI)

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Trump Talks “Peace Deal” But Nothing Stops This Train

Key Points

  • President Trump again baits financial markets with the prospect of a peace agreement.
  • Brent Crude (July’26 futures) is testing support at $100 per barrel.
  • However, the crude market faces critical shortages even if a peace deal is signed.
  • The S&P 500 rallied to a new high at 7365, while the Dow threatens a breakout above 50,000.
  • The ISM Services PMI warns that growth is slowing, while soaring prices signal inflationary pressures.
  • Lithium is in a strong uptrend, while Copper, Critical Materials, and Uranium show signs of a recovery.
  • The RBA hiked rates this week and would like to hold for a while, but rising prices may force further hikes.

ISLAMABAD/WASHINGTON/TEL AVIV, May 7 (Reuters) – U.S. President Donald Trump predicted a swift end to the ​war with Iran as Tehran considered a U.S. peace proposal that sources said would formally end the conflict while leaving unresolved key U.S. demands that Iran suspend ‌its nuclear program and reopen the Strait of Hormuz.

An Iranian foreign ministry spokesperson cited by Iran’s ISNA news agency said Tehran would convey its response, while Iranian lawmaker Ebrahim Rezaei, a spokesperson for parliament’s powerful foreign policy and national security committee, described the proposal as “more of an American wish-list than a reality.”

“They want to make a deal. We’ve had very good talks over the last 24 hours, and it’s very possible that we’ll make ​a deal,” Trump told reporters in the Oval Office on Wednesday, saying later “it’ll be over quickly.”

Trump has repeatedly played up the prospect of an agreement to end the war ​that started on February 28, so far without success. The two sides remain at odds over a variety of difficult issues, such as Iran’s nuclear ⁠ambitions and its control of the Strait of Hormuz, which before the war handled one-fifth of the world’s oil and gas supply.

A Pakistani source and another source briefed on the mediation ​said an agreement was close on a one-page memorandum that would formally end the conflict. That would kick off discussions to unblock shipping through the strait, lift U.S. sanctions on Iran and set ​curbs on Iran’s nuclear program, the sources said.

A separate senior Pakistani official involved in the talks told Reuters on Thursday that negotiators were hopeful of reaching a deal but noted gaps between the sides remained.

Brent Crude (July futures), buoyed by optimism over a prospective peace deal, is retracing to test support at $100 per barrel.

Brent Crude Futures (ICE July'26)

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S&P 500 Uptrend Against Gold

Key Points

  • The S&P 500 index made a new high at 7230, reversing its long-term downtrend against Gold.
  • However, the Dow is struggling to break resistance at 50,000.
  • The ISM Manufacturing PMI indicates the sector is expanding, but producer prices are soaring.
  • Lithium is in a strong uptrend, while Copper remains rangebound.
  • Japanese intervention to support the Yen underlines the long-term reason for buying Gold.
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US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.497 on April 17, indicating improving liquidity in financial markets. A rise above -0.40 would signal risk-off, and confirm bear signals from the Fed Funds Rate cycle and the University of Michigan Index of Current Economic Conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing remains elevated at 95.73% compared to 91.79 percent three weeks ago.

US Stock Market Value Indicator

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 the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

The S&P 500 eased to 25.8 times its highest trailing earnings, from a September 2025 peak at 30.1, but is still 49% higher than its long-term average of 17.3.

S&P 500 PE of Highest Trailing Earnings

Conclusion

The bull-bear indicator at 40% warns of a bear market, while extreme pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.465 on April 10. A rise above -0.40 would signal risk-off, confirming bear signals from Fed monetary policy (rate-cut cycle) and the University of Michigan Index of Current Economic Conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing continued its sharp rise, reaching 95.97 percent from 91.79 percent two weeks ago.

We replaced the S&P 500 Price-to-Sales ratio and Forward Price-Earnings Ratio with similar series for the Dow Jones Industrial Index, but use a 20% trimmed mean with the new series. The trimmed mean excludes the top 10% and bottom 10% of readings to minimize distortion from outliers in the smaller population of 30 stocks.

US Stock Market Value Indicator

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 the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

Robert Shiller’s CAPE compares the S&P 500 to its 10-year average of inflation-adjusted earnings. The ratio rebounded to 39.07, almost 75% above its long-term mean of 22.38.

S&P 500 CAPE
The S&P 500 measured against the highest trailing earnings, increased to 25.7 from 23.7 two weeks ago as stocks rallied, a 49% premium relative to its long-term mean of 17.3.

S&P 500 PE of Highest Trailing Earnings

Conclusion

The bull-bear indicator at 40% warns of a bear market, while extreme pricing highlights the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The University of Michigan Index of Current Economic Conditions fell to its lowest level since the survey started in 1960. The index signals risk-off, but still has to be confirmed by either the Chicago Fed National Financial Conditions Index or Twiggs 30-week Smoothed Momentum on the S&P 500.

University of Michigan: Current Economic Conditions

The S&P 500 30-week Twiggs Smoothed Momentum remains well above zero, signaling risk-on.

S&P 500

However, the Chicago Fed National Financial Conditions Index rose to -0.433 on April 3, indicating tighter financial market conditions. A rise above -0.40 would signal risk-off, confirming the bear signals from Fed monetary policy (rate-cut cycle) and the University of Michigan Index of Current Economic Conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing rose sharply to 94.01 percent from 91.79 percent last week. The fall from 98.64 five weeks ago is partly attributable to a break in the series. We replaced the S&P 500 Price-to-Sales ratio and Forward Price-Earnings Ratio with similar series for the Dow Jones Industrial Index, but use a 20% trimmed mean with the new series. The trimmed mean excludes the top 10% and bottom 10% of readings to minimize distortion from outliers in the smaller population of 30 stocks.

US Stock Market Value Indicator

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 the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

The S&P 500 PE, measured against the highest trailing earnings, improved to 24.5 from 23.7 last week as stocks rallied, but still indicates a correction. A fall below the long-term average of 17.3 would flag a potential buy opportunity.

S&P 500 PE of Highest Trailing Earnings

Conclusion

The bull-bear indicator at 40% warns of a bear market, while extreme pricing highlights the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

Ceasefire Falls Apart

Key Points

  • Israel stepped up airstrikes on Hezbollah targets in Lebanon.
  • Iran’s lead negotiator says a bilateral ceasefire is unreasonable in such a situation.
  • Iran attacked Saudi Arabia’s East-West Pipeline, which bypasses the Strait of Hormuz, just hours after the ceasefire ‌was agreed.
  • The United Arab Emirates carried out air strikes on Iranian production and refining facilities. Iran retaliates with a barrage of missiles and drones.
  • Ukraine defies calls to stop striking Russian energy facilities.
  • Brent crude bids for spot delivery at $144 per barrel, but no sellers.
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Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

The heavy truck sales downtrend continues, with the 12-month moving average declining to 32,900 units from its September 2023 peak of 43,000. The decline of more than 10% (to below 38,700) signals risk-off.

Heavy Truck Sales

Employment in cyclical sectors — manufacturing, construction, transportation, and warehousing — improved to 27.472 million. The decline of 199K from its September 2024 peak is less than the -300K required to trigger a risk-off signal.

Employment in Cyclical Sectors

The Chicago Fed National Financial Conditions Index increased to -0.434 on March 27, indicating tighter financial market conditions. NFCI values below -0.40 indicate stimulative monetary policy, while values above zero are restrictive. A rise above -0.40 would confirm the bear signals from Fed monetary policy (rate-cut cycle) and the University of Michigan Index of Current Economic Conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased to 91.79 percent from 92.26 percent last week. The steep change from 98.64 four weeks ago is partly attributable to a break in the series. We replaced the S&P 500 Price-to-Sales ratio and Forward Price-Earnings Ratio with similar series for the Dow Jones Industrial Index, but there is one notable difference. We use a 20% trimmed mean with the new series, which excludes the top 10% and bottom 10% of readings for individual stocks, to minimize distortion from outliers in the smaller population of 30 stocks. The reading remains extreme, flagging risk of a significant drawdown.

US Stock Market Value Indicator

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 the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

The S&P 500 PE, measured against the highest trailing earnings, retreated sharply as equity markets retreated. A fall below its long-term average of 17.3 would flag a potential buy opportunity.

S&P 500 PE of Highest Trailing Earnings

Warren Buffett’s ratio of stock market capitalization to GDP eased to 2.82, but remains near its recent extreme, and a long way above the long-term average of 1.20.

Stock Market Capitalization/GDP

Conclusion

The bull-bear indicator at 40% warns of a bear market, while extreme pricing highlights the risk of a significant drawdown.

Acknowledgments

Notes

Posted on

Jobs Rise but Prices Soar, Growth Slows and Liquidity Tightens

Key Points

  • Non-farm employment jumped by 178,000 in March, well above the expected 60,000.
  • The unemployment rate declined to 4.3%.
  • Growth in aggregate hours worked, however, slowed to 0.4% over the past year.
  • The ISM Manufacturing Prices index jumped to 78.3%, warning of a price shock.
  • Aluminium prices soared to nearly $3,600/tonne due to supply shortages caused by the war in the Persian Gulf.
  • Brent crude closed the week at $109 per barrel, with no end to the Iran war in sight.

The BLS reported a 178,000 increase in non-farm payroll in March, well above the 60,000 forecast. Employment growth has been erratic, averaging less than 15,000 over the past 6 months.

Employment Growth

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Posted on

US Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, and the indicator on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuations are high; however, we recommend exercising caution when adding new positions.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead, with three of five indicators signaling risk-off.

US Bull-Bear Market Indicator

University of Michigan’s Index of Current Economic Conditions remains near its record low, warning of a recession.

University of Michigan: Current Economic Conditions

However, the Chicago Fed National Financial Conditions Index has yet to confirm the bear signal. Financial conditions tightened to -0.475 on March 20; a rise above -0.40 would confirm the risk-off signal.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased slightly to 92.26 percent from 92.37 percent last week. The steep change from 98.64 three weeks ago is partly attributable to a break in the series. We replaced the S&P 500 Price-to-Sales ratio and Forward Price-Earnings Ratio with similar series for the Dow Jones Industrial Index. There is one notable difference: we use a 20% trimmed mean, which excludes the top 10% and bottom 10% of readings for individual stocks, to minimize distortion from outliers in the smaller population of 30 stocks. The reading remains extreme, warning of a significant drawdown.

US Stock Market Value Indicator

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 the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.

The S&P 500 PE, measured against the highest trailing earnings, retreated sharply as equity markets shifted to risk-off.

S&P 500 PE of Highest Trailing Earnings

Robert Shiller’s long-term CAPE index has also retreated. CAPE compares the current S&P 500 value to its 10-year average of inflation-adjusted earnings.

S&P 500 CAPE

Conclusion

The bull-bear indicator at 40% warns of a bear market, while extreme pricing highlights the risk of a significant drawdown.

Acknowledgments

Notes

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