Tag: Stock Market Pricing Indicator

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US Stock Pricing Reaches a New Extreme

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. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we would advise investors to be circumspect about adding new positions without carefully investigating underlying value.

Bull/Bear Market

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

Bull-Bear Market Indicator

Updates to two of our labor market indicators (highlighted in orange) are delayed because of the US government shutdown.

Stock Pricing

Stock pricing increased to a new high of 98.56 percent this week, compared to an 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.

The Warren Buffett indicator compares stock market capitalization to GDP. Our preliminary calculation for the third quarter reached a new high of 3.06, compared to a peak of 1.89 during the Dotcom bubble.
Stock Market Capitalization to GDP

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 bear market and extreme valuations

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. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high, but we would advise investors to be circumspect about adding new positions without careful investigation of the underlying value.

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 -0.567, indicating loose monetary conditions that will likely support stock prices.

Chicago Fed National Financial Conditions Index

However, heavy truck sales are falling, reflecting industry concerns that economic activity is slowing.

Heavy Truck Sales

Stock Pricing

Stock pricing eased to 98.27 percent, from a new high of 98.32 percent last week, and an 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 ratio for the S&P 500 is at its highest ever level (39.20) outside of the 2000 Dotcom bubble.

Robert Shiller's CAPE Ratio

CAPE compares the current index value to a ten-year average of inflation-adjusted earnings.

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

Posted on

US Stock Valuations Reach a New High

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. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high, but we would advise investors to be circumspect about adding new positions without careful investigation of the underlying value.

Bull/Bear Market

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

Bull-Bear Market Indicator

The Fed resumed rate cuts, with the fed funds target rate now 4.0% to 4.25%, and a mid-point of 4.125%. The downward cycle warns of a bear market.

Fed Funds Target Rate Mid-point

However, the Chicago Fed National Financial Conditions Index declined to -0.558, indicating loose monetary conditions that will likely support stock prices.

Chicago Fed National Financial Conditions Index

Stock Pricing

Stock pricing increased to a new high of 98.32 percent, compared to 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.

Warren Buffett’s favorite stock market valuation indicator, market capitalization climbed to a new all-time high of 2.84 times GDP in the second quarter, more than double the long-term average (since 1974) of 1.175.

Stock Market Capitalization/GDP

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

Posted on

US Stocks Reach New Valuation Extreme

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. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high, but we would advise investors to be circumspect about adding new positions without careful investigation of the underlying value.

Bull/Bear Market

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

Bull-Bear Market Indicator

The unemployment rate and continued claims are gradually rising, indicating the US economy is slowing rather than the dramatic collapse suggested by recent BLS job growth revisions.

Continued Claims & the Unemployment Rate

Stock Pricing

Stock pricing increased to a new high of 98.19 percent, compared to 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.

The S&P 500 is at a precarious 25.4 times projected earnings, a level only exceeded during the Dotcom bubble in 2000.

S&P 500 Forward Price-Earnings Ratio

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

Posted on

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

Posted on

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 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 -0.56, indicating easy monetary conditions that support stocks and bonds.

Chicago Fed National Financial Conditions Index

However, heavy truck sales are declining, with the 12-month average falling to 38.5K units, reflecting slowing transport activity in the broader economy.

Heavy Truck Sales

Stock Pricing

Stock pricing eased slightly to 97.96 from a new high of 97.98 percent last week, and a low of 95.04 percent in April. 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.

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

Posted on

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 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 -0.555, indicating easy monetary conditions are supporting stocks and bonds.

Chicago Fed National Financial Conditions Index

Continued unemployment claims increased to 1.972 million on August 9, but the unemployment rate held steady at 4.2% in July. Fed Chair Powell highlighted the changing labor market dynamics in his Jackson Hole address on Friday. Job gains may decline due to falling immigration, but rising unemployment claims indicate a slowing economy. A rising unemployment rate for August would confirm a weakening labor market and open the door to a Fed rate cut in September.

Continued Unemployment Claims & Unemployment Rate

Stock Pricing

Stock pricing increased to a new high of 97.98 percent, compared to a low of 95.04 percent in April. 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 edged higher to 38.7, the highest ever recorded outside of the Dotcom bubble. CAPE compares the current S&P 500 index to a ten-year average of inflation-adjusted earnings.

Robert Shiller's CAPE

The S&P 500 price-to-sales ratio of 3.08 is the highest since our data began in 2000, and more than 70% above our long-term average of 1.78.

S&P 500 Price-to-Sales

Conclusion

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

Acknowledgments

Notes

Posted on

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 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

Notes

Posted on

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

Posted on

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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