Current Economic Conditions Archives - the patient investor %

Key Points

The University of Michigan Consumer Sentiment Index fell to a new record low since the series started in 1960.
The Dow Jones Industrial Average broke through resistance at 50,000, confirming a fresh bull market advance.

The University of Michigan Consumer Sentiment Index fell to a new low of 44.8.

University of Michigan: Consumer Sentiment

A plot of the 3-month moving average since 1960, when the Consumer Sentiment series started, shows that consumer sentiment is at a record low.

University of Michigan: Consumer Sentiment

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Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

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.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

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 40%, warning of a bear market ahead.

Bull-Bear Market Indicator

The Chicago Fed National Financial Conditions Index declined to -0.54, indicating easy monetary conditions are supporting stocks and bonds.

Chicago Fed National Financial Conditions Index

However, the University of Michigan consumer survey of current economic conditions declined to a low of 60.9 in August, continuing a downtrend since mid-2024. Values below 100 indicate a bear market.

University of Michigan: Current Economic Conditions

Stock Pricing

Stock pricing climbed to a new high of 97.94 percent, compared to a low of 95.04 percent in April and an earlier 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 S&P 500 index to a ten-year average of inflation-adjusted earnings. Outside the Dotcom bubble, the current CAPE value of 38.59 is the highest ever recorded in over a hundred years.

Robert Shiller's CAPE

The forward price-earnings ratio for the S&P 500 increased to 24.9, more than a 50% premium compared to the long-term average of 16.1.

S&P 500 Forward PE

Conclusion

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

Acknowledgments

Prof. Robert Shiller: CAPE 10 Data
S&P Global: S&P 500 Sales and Earnings Estimates
University of Michigan: Survey of Consumers
Federal Reserve of St Louis: FRED Data
Bureau for Economic Analysis: Motor Vehicles Data

Notes

See Managing Risk to learn more.
See Bull-Bear and Stock Valuation for more on our composite market indicators.