Tag: Heavy Truck Sales

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US 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 valuation levels.

Bull/Bear Market

The Bull/Bear indicator remains at 40%, warning of a bear market ahead.

Bull-Bear Market Indicator

Employment in cyclical sectors — Manufacturing, Construction, Transportation, and Warehousing — eased to 27.76 million from a high of 27.82 million in February, but is far above the 300K fall that would warn of a recession.

Employment in Cyclical Sectors

The 12-month average of heavy truck sales fell to 38.0K units in August, reflecting slower activity in the broad economy. A fall of more than 10% signals risk-off.

Heavy Truck Sales

Stock Pricing

Stock pricing increased slightly to 97.97, close to the high of 97.98 percent from two weeks ago, and well above the April low of 95.04 percent. The extreme reading warns that stocks are at long-term 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 S&P 500 index to the preceding 10 years of inflation-adjusted earnings. Except for the Dotcom bubble in 2000, the current CAPE value of 38.36 is higher than at any time in the past 120 years.

S&P 500 CAPE

Conclusion

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

Acknowledgments

Notes

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US Leading Indicator slips to 40%

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 declined to 40% from 60% last week, with heavy truck sales moving to risk-off:

Bull-Bear Market Indicator

Heavy truck sales declined to 37.1K units in July, with the 12-month moving average falling to 38.6K. Heavy truck sales are a reliable indicator of transport activity and business confidence. A decline of the 12-month MA by more than 10% from its October 2023 peak at 43K signals risk-off.

Heavy Truck Sales (Units)

Stock Pricing

Stock pricing climbed to a new high of 97.81 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.

The forward price-earnings ratio for the S&P 500 is close to the highest level in the last century, apart from the Dotcom bubble in 2000. The current reading of 24.5 is more than a 50% premium to the long-term average of 16.1 (since September 1974).

S&P 500 Forward PE

The S&P 500 PE is 28.6 times the highest trailing earnings, compared to 33.8 during the Dotcom bubble and a long-term average of 17.3 (since 1974).

S&P 500 PE of Highest Trailing Earnings

Conclusion

The composite leading indicator signals a bear market, while extreme pricing highlights 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, 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

Employment in cyclical sectors—manufacturing, construction, and transport and warehousing—remains strong at 27.8 million, with no sign of the typical contraction that precedes a recession.

Employment in Cyclical Sectors: Manufacturing, Construction, and Transport & Warehousing

However, the 12-month average of heavy-weight trucks declined to 39.0K units in May, just a smidgen from a 38.7K bear signal.

Heavy Truck Sales

Stock Pricing

Stock pricing increased to 96.70, compared to 95.04 seven 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 remain 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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US Weekly Market 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 remained at 60% this week, with two of the five leading indicators signaling risk-off:

Bull-Bear Market Indicator

We have revised our Heavy Truck Sales indicator to use a 12-month moving average of unadjusted data from the BEA. Recent data revisions were due to adjustments to seasonal factors provided by the Fed. Switching to a 12-month MA eliminates the need for seasonal adjustments.

The graph below compares a buy-and-hold strategy for the S&P 500 (green) to an active strategy (purple) that switches to AA corporate bonds when the Heavy Truck Sales indicator signals risk-off (white bars).

Heavy Truck Sales

The graph below shows an active strategy (blue) that switches to gold when the Heavy Truck Sales indicator signals risk-off (white bars).

Heavy Truck Sales

Stock Pricing

Stock pricing eased to 96.03, compared to 95.04 three 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 remain on the cusp of a bear market, with the bull-bear indicator at 60%. Stock pricing remains extreme, warning of the risk of a significant drawdown.

Acknowledgments

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US Weekly Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The dial on the left indicates bull or bear market status, while the one on the right reflects stock market drawdown risk.

Bull/Bear Market

Our Bull/Bear Market indicator has fallen to 40%, with three of the five leading indicators now signaling risk-off:

Bull-Bear Market Indicator

Heavy truck sales fell to 33.6K units in March, with the 3-month moving average declining more than 15% from its July 2023 high, warning of a recession.

Heavy Truck Sales (Units)

Stock Pricing

Stock pricing eased slightly to 95.09 from a high of the 97.79 percentile six weeks ago. The extreme reading warns that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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 now in a bear market, with the bull-bear indicator falling to 40%. Stock pricing remains extreme, warning of the risk of a significant drawdown.

Acknowledgments

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US Weekly Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The dial on the left indicates bull or bear market status, while the one on the right reflects stock market drawdown risk.

Bull/Bear Market

The Bull/Bear Market indicator rebounded to 60%, due to data revisions to heavy truck sales. Two of the five leading indicators now signal Risk-off:

Bull-Bear Market Indicator

Heavy truck sales were revised up to a seasonally adjusted 37,823 units in December, after an earlier report at 35,152 units. January sales jumped to a hot 44,499 units confirming that economic activity is not slowing.

Heavy Truck Sales (units)

This is the second time that a heavy trucks data revision has affected our model. We will investigate using a 3-month moving average to reduce the impact of revisions.

Stock Pricing

Stock pricing eased slightly to 97.75 from the 97.91 percentile two weeks ago. The extreme reading continues to warn that stocks are at risk of a significant drawdown.

Stock Market Value Indicator

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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 close to a bear market, with the bull-bear indicator revised to 60%. Stock pricing remains extreme, increasing the risk of a significant drawdown, warning not to increase exposure to risk assets like growth stocks.

Acknowledgments

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Weekly Stock Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The above two dials provide a snapshot of our market view and attitude to risk.

Bull/Bear Market

The Bull/Bear Market indicator improved to 60% from 40% last week.

Heavy truck sales increased to 42,240 units in November, while October sales were revised up to 38,550 from the earlier reported 32,490.

Heavy Truck Sales

Just two of the five indicators now signal Risk-off:

Bull/Bear Market Indicator

Stock Pricing

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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.

Stock pricing continues to rise, reaching the 97.95 percentile compared to 97.83 last Friday. This warns that stocks have the potential for large drawdowns.

Stock Market Value Indicator

Conclusion

The bane of forecasting is data revisions. The collection of data for October heavy truck sales may have been impacted by hurricanes in the Southeastern region of the US.

We are again at the border between a bull and bear market, with our bull/bear indicator increasing to 60%.

However, we do not plan to increase exposure to risk assets because stock pricing remains extreme, warning of the potential for large drawdowns.

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Weekly Stock Market Snapshot

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The above two dials provide a snapshot of our market view and attitude to risk.

Bull/Bear Market

The Bull/Bear Market indicator fell to 40% last Friday from 80% on November 9th.

The most recent bear signal is heavy truck sales, which plunged to a seasonally adjusted 32.5 thousand units in October 2024 from a peak of 46.1 thousand in May 2023.

Heavy Truck Sales

There are now three of five indicators signaling Risk-off:

Bull/Bear Market Indicator

Stock Pricing

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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.

Stock pricing remains in the extreme range, at the 97.83 percentile compared to 97.67 last Friday, warning that stock prices have the potential for large drawdowns.

Stock Market Value Indicator

Conclusion

We are headed for a bear market, with our allocation to risk assets declining to 40%.

Stock pricing is also extreme, warning of the potential for large drawdowns.

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Weekly Market Snapshot – bear signal

Bull/Bear Market Indicator
Stock Market Pricing Indicator

The above two dials provide a snapshot of our market view and attitude to risk.

Bull/Bear Market

The Bull/Bear Market indicator fell to 40% from 80% on Friday, November 9th.

The most recent bear signal is heavy truck sales, which plunged to a seasonally adjusted 32.5 thousand units in October 2024 from a peak of 46.1 thousand in May 2023.

Heavy Truck Sales

There are now three of five indicators signaling Risk-off:

Bull/Bear Market Indicator

Stock Pricing

The Stock Pricing indicator compares stock prices to long-term sales, earnings, and economic output to gauge market risk. 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.

Stock pricing remains in the extreme range, at the 97.67 percentile compared to 97.59 last Friday, warning that stock prices have the potential for large drawdowns.

Stock Market Value Indicator

Conclusion

We are headed for a bear market, with our allocation to risk assets declining to 40%.

Stock pricing is also extreme, warning of the potential for large drawdowns.

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Bull/Bear Market Indicator

We aim to consolidate our economic and financial market analysis into a single quantifiable bull/bear market indicator.

Bull/Bear Market Indicator

We modified one of our five component market risk indicators to reduce whipsaws. Instead of the Fed Funds Rate confirmed by ISM Services Business Activity, we have created a composite indicator comprising:

  • the Fed Funds Rate;
  • the Coincident Economic Activity Index from the Philadelphia Fed;
  • the Chicago Fed National Financial Conditions Index; and
  • the S&P 500 with 30-week Twiggs Smoothed Momentum.

Three out of four components are required to confirm a bear market.

Our first signal was the Coincident Economic Activity Index which crossed below 2.5% annual growth for the 12 months to July, warning that the economy is slowing.

Coincident Economic Activity Index from the Philadelphia Fed

Last week, the Fed announced a 50 basis point rate cut, adding a second bear signal.

Fed Funds Target Rate (Average of High & Low)

However, the Chicago Fed National Financial Conditions Index below zero signals easy monetary conditions at a low -0.56.

Chicago Fed National Financial Conditions Index

30-Week Twiggs Smoothed Momentum also signals a healthy up-trend on the S&P 500 at 12.8%.

S&P 500 with 30-week Twiggs Smoothed Momentum

The signal, therefore, remains Risk-On.

Of our four remaining risk indicators, only one signals Risk-Off.

The spread between the 10-year Treasury yield and the 3-month T-bill discount rate has been negative for 22 months. While that is a record time, it does not negate its reliability in predicting a recession within 12 months after the inversion ends.

10-Year Treasury Yield - 3-Month T-bill Discount Rate

Our second risk signal would only be triggered when the yield curve inversion ends.

Employment in cyclical industries—manufacturing, construction, transport, and warehousing—accounts for most of the jobs lost during a typical recession. Cyclical employment grew by 17,900 in August, with no sign of a recession on the horizon.

Cyclical Employment

Heavy truck sales are another reliable leading indicator of recessions. Seasonally adjusted sales of more than 42,000 units in August continue to signal a robust economy.

Heavy Truck Sales

Conclusion

Four out of five risk indicators continue to signal a bull market.

Our strategy is to divide our investment portfolio into five equal-sized buckets of 20% each. For each indicator warning of a bear market, one bucket will be switched to alternative investments—such as A-grade bonds or gold.

At present, only the 10-year/3-month Treasury yield curve warns of a bear market, so we maintain 80% exposure to stocks.

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