Tag: Chicago Fed National Financial Conditions Index

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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

Financial market liquidity is climbing, with the Chicago Fed National Financial Conditions Index declining to -0.57, indicating easy monetary conditions.

Chicago Fed National Financial Conditions Index

However, declining manufacturing jobs have caused a 50K decline in cyclical sector employment since June. The decline is less than the 300K needed for the cyclical jobs indicator to signal risk-off, but unsettled stock investors, with both the Dow and S&P 500 indicating a correction.

Cyclical Employment

Stock Pricing

Stock pricing climbed to 97.57 percent, compared to a low of 95.04 percent in April 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.

Estimated stock market capitalization at the end of June soared to a new high compared to GDP for the past year. At 2.85, Warren Buffett’s favorite long-term indicator of market value is more than double its 1.17 long-term average and more than 50% higher than the 2000 high of 1.89 during the Dotcom bubble.

Stock Market Capitalization/GDP

Conclusion

Stocks are bordering on a bear market, while extreme stock pricing raises 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, 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 Chicago Fed National Financial Conditions Index declined to -0.55, with expanding liquidity supporting financial markets.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing climbed to 97.50 percent, compared to a low of 95.04 percent in April 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 Shiller CAPE ratio compares the current S&P 500 index value to 10 years of inflation-adjusted earnings. The CAPE ratio of 38.33 is the highest outside of the Dotcom bubble in 2000.

S&P 500 Shiller CAPE

The forward price-earnings ratio is also at an extreme reading of 24.5, compared to the fifty-year average of 16.3.

S&P 500 Forward Price-Earnings Ratio

Conclusion

We are bordering on a bear market. The bull-bear indicator is still at 60%, but extreme stock pricing increases the risk of a significant drawdown.

Acknowledgments

Notes

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S&P 500 weakens and gold rallies

Key Points

  • The S&P 500 closed above 6300 for the first time, supported by strong liquidity
  • But declining Trend Index peaks warn of a retracement
  • Consumer Confidence remains weak, and the Conference Board Leading Economic Index signals a recession
  • Gold and silver rallied as the dollar weakened

The S&P 500 closed above 6300 for the first time, but declining Trend Index peaks warn of selling pressure. Expect retracement to test support at 6100.

S&P 500

The Dow Jones Industrial Average also signals weakness, with declining Trend Index peaks indicating selling pressure.

Dow Jones Industrial Average

The Broad DJ US Index (red) has underperformed the DJ World ex-US index (blue) over the past six months.

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

Financial Markets

Financial markets grow increasingly supportive, with the Chicago Fed National Financial Conditions Index (NFCI) declining to -0.54. Values above zero are considered restrictive.

Chicago Fed National Financial Conditions Index

Bitcoin has retraced slightly from resistance at $120K, but still signals bullish market conditions.

Bitcoin (BTC)

Treasury Markets

10-Year Treasury yields declined to 4.35%, but rising Trend Index troughs signal continued buying pressure.

10-Year Treasury Yield

Economy

Consumer confidence remains low, with the Conference Board index declining by 5 points to 93, similar to levels during the 2020 pandemic.

June’s retreat in confidence was shared by all age groups and almost all income groups. It was also shared across all political affiliations, with the largest decline among Republicans.

Conference Board: Consumer Confidence

The Conference Board’s Leading Economic Index (LEI) declined to 99.8% in June. Six-month growth in the LEI (blue) fell to an annualized -5.6%, below the -4.1% that signals a recession (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 below over the past six months. A broad decline confirms the recession signal.

Conference Board Leading Economic Index - Components

Dollar & Gold

The Dollar Index retreated below support at 98, signaling another decline. A breach of support of 96.50 would strengthen our long-term target of 90.

Dollar Index

Gold rallied to test resistance at $3,400 per ounce. A breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000.

Spot Gold

Silver is testing resistance at $39 per ounce. A breakout would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.

Spot Silver

Conclusion

The S&P 500 closed at a new high, but declining Trend Index peaks warn of selling pressure.

The Dow Industrial Average respected resistance at 45,000, failing to confirm the S&P 500 bull market signal.

Financial market conditions indicate strong liquidity, but consumer confidence is weak, and the Conference Board Leading Economic Index signals a recession.

The US Dollar Index retreated below support at 98, triggering a rally in gold and silver. A gold breakout above $3,400 would offer an immediate target of $3,500 and strengthen our year-end target of $4,000. A silver breakout above $39 would offer a target of $42, but declining Trend Index peaks warn of stubborn resistance.

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, 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 Chicago Fed National Financial Conditions Index declined to -0.54, indicating that expanding liquidity supports financial markets. NFCI values above zero indicate restrictive financial conditions.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing eased slightly to 97.32 percent, compared to a low of 95.04 percent in April 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 Price-to-Sales ratio climbed to 3.12, higher than during the Dotcom bubble and way above the long-term average of 1.78. While partly attributable to wider profit margins, these tend to be cyclical and revert to the mean. Margins are also likely to come under pressure as companies are forced to absorb import tariffs if they cannot pass them on to consumers through higher prices.

S&P 500 Price-to-Sales

Conclusion

We are bordering on a bear market, with the bull-bear indicator at 60%, while 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, 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 Chicago Fed National Financial Conditions Index declined to -0.51, reflecting strong liquidity in financial markets. Values above zero indicate restrictive financial conditions.

Chicago Fed National Financial Conditions Index

Weekly continued claims are climbing, warning of a deteriorating labor market despite the low 4.1% unemployment rate.

Continued Claims & Unemployment Rate

Stock Pricing

Stock pricing eased slightly to 97.34 percent, compared to a low of 95.04 percent in April 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 current value of the S&P 500 index to inflation-adjusted earnings for the preceding 10 years. The multiple of 37.69 is similar to the last leg of the Dotcom bull market in 1999, warning that stocks are dangerously overpriced.

Robert Shiller's CAPE 10 Ratio

Conclusion

We are bordering on 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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Bitcoin blast-off bullish for S&P 500

Summary

  • Bitcoin reaches a new high
  • The bullishness is expected to spill over into stocks

Bitcoin blasted through resistance at 110K, reaching a new high at 117.6K, signaling a surge of animal spirits in financial markets.

Bitcoin (BTC)

The result is bound to be bullish for US stocks. The S&P 500 recovered above 6250, while higher Trend Index troughs signal buying pressure.

S&P 500

A breakout of the Dow Jones Industrial Average above 45K would confirm the S&P 500 bull market signal.

Dow Jones Industrial Average

Financial Markets

The Chicago Fed National Financial Conditions Index decreased to -0.51 on July 4, signaling easy monetary conditions.

Chicago Fed National Financial Conditions Index

Dollar & Gold

The US Dollar Index is retracing to test resistance at 98. Respect will likely confirm the downtrend. Our target is 90.
Dollar Index

Gold continues its bullish consolidation between 3200 and 3430. An upward breakout would strengthen our target of 4000 by year-end.

Spot Gold

Silver broke out from its recent pennant consolidation at 36, offering a short-term target of 39. Rising Trend Index troughs indicate buying pressure.

Spot Silver

Conclusion

Bitcoin warns of a sharp rise in bullish sentiment.

A Dow breakout above 45K would confirm a bull market.

This reminds us of the final leg of the bull market during the Dotcom bubble, from 1999 to 2000. It was great for traders but terrible for investors.

Acknowledgments

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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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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

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Big Beautiful Bill threatens bond market blowout

Summary

  • The bond market reacted to the record tax and spending bill in Congress that extends tax cuts for corporations and the wealthy
  • The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to the US federal debt, depending on whether policymakers extend temporary provisions
  • A weak bond auction lifted long-term yields
  • The dollar fell, while gold climbed above 3300

I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.

~ James Carville, political consultant and lead strategist for Bill Clinton’s successful 1992 presidential campaign.

10-Year Treasury Yield
Weak bond auction

A $16 billion auction of 20-year Treasury bonds on Wednesday attracted less than usual interest, with yields rising to 5.127% after the auction.

“We’ve seen several soft 20-year bond auctions and it has a checkered history as a benchmark issue,” said Thomas Simons, chief U.S. economist at Jefferies in New York. “This one was not one of the best by any stretch of the imagination, but it also wasn’t one of the worst.”

Simons said while the auction was “far from a disaster,” it showed there was not going to be a reversal in the sell-off at the long end of the yield curve anytime soon. (Reuters)

Why is this a problem?

Liz Ann Sonders, Charles Schwab’s chief investment strategist, responded to a question on CNBC:  Is 4.58% on the 10-year a problem for the bond market?

It’s not so much the level that matters, it’s the “Why?” If this was driven by the growth trajectory, that would be great. But the fact is it’s driven by uncertainty with regard to inflation, and the Fed’s expected reaction. The wattage on the spotlight aiming at the debt and deficit has been turned up. The investor class cares deeply about this issue but the average voter can’t even conceptualize what 30-plus trillion dollars means and doesn’t tend to vote based on this. This spotlight on the issue is a good thing and will increase the chance that something gets done.

President Trump’s “big, beautiful” tax bill

The House Rules Committee advanced President Trump’s “big, beautiful” tax bill late Wednesday after 21 hours of debate and amendments, sending the legislation to the floor where it is expected to receive a final vote early Thursday morning.

The package includes a major spending increase for immigration enforcement and the military, and it would extend Trump’s 2017 tax cuts, which are scheduled to expire at the end of this year. It includes a series of cuts to Medicaid, food assistance, and clean energy funding to pay for the trillions of dollars in tax cuts and new red ink. (CNBC)

The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to US federal debt by 2034, depending on whether policymakers extend temporary provisions. (Reuters)

Rep. Chip Roy, R-Texas, and House Freedom Caucus chair Andy Harris, R-Md., were among the members who met with Trump at the White House Wednesday afternoon, in a hastily arranged effort to convince fiscal hawks to set aside their objections and back the deficit-exploding package of tax cuts.

Meanwhile, markets tumbled on concerns that Trump’s spending bill would pass, leading to exploding federal deficits and weaker long-term fiscal health. The yield on the 30-year Treasury bond hit 5.09%. (CNBC)

The Dollar & the Dow

The dollar weakened, with the US Dollar Index breaking below 100. Follow-through below 98 would warn of a long-term decline with a target of 90.

Dollar Index

The Dow Jones Industrial Average closed below its former primary support level at 42K. A follow-through below 41.5K would close the recent gap, signaling another test of primary support at 37K.

Dow Jones Industrial Average

Financial Markets

Recent weakness comes despite a sharp recovery in liquidity, with the Chicago Fed National Financial Conditions Index falling to -0.58.

Chicago Fed National Financial Conditions Index

Bitcoin also reached a new high of 110K, signaling a sharp increase in risk appetite in financial markets.

Bitcoin (BTC)

Gold & Physical Demand

Gold climbed above 3300, headed for a test of the resistance band between 3400 and 3500. A breakout would strengthen our target of 4000 by the end of 2025.

Spot Gold

A 700% year-over-year spike in COMEX physical gold deliveries in May 2025 (16,000 contracts, $5.3 billion), the largest in history, reflects unprecedented physical demand from institutions, possibly including the US government or Treasury. Despite the recent correction, gold’s rally to 3300 demonstrates resilience, with physical demand overwhelming paper price suppression. (Andy Schectman)

Conclusion

President Trump’s “big, beautiful tax bill” threatens a bond market revolt, with a steep rise in long-term Treasury yields if passed. The 10-year Treasury yield respected support at 4.5%, warning of a test of resistance at 5.0%.

Rising long-term yields would likely cause a sharp fall in the Dow and S&P 500.

The bipartisan Committee for a Responsible Federal Budget estimates the bill would add between $3.3 trillion and $5.2 trillion to US federal debt by 2034, depending on whether policymakers extend temporary provisions.

The dollar is weakening, and breakout of the US Dollar Index below 98 would confirm a long-term decline with a target of 90.

Gold is rising, and a breakout above 3500 would strengthen our long-term target of 4000 by the end of 2025.

Acknowledgments

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