The strength of the labor market is constantly being trotted out in defense of the robust status of the US economy, but broad sets of labor data show this not to be the case. First, let us examine a very broad US labor market growth metric: This indicator needs to fall below -10 before the odds of recession skyrocket to a near certainty and so whilst there is no cause for immediate alarm, it is clear the indicator is not […]
About RecessionALERT
Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.Animation : The incredible US employment recovery
Below is an animation of the annual average unemployment rate per U.S state from 2011 onward. It’s quite incredible to see how unemployment was erased state-by-state over the years: However statewide improvements in employment have probably peaked-out as shown in the chart below, which depicts the aggregate (equal weighted) inverse 6-month unemployment rate growth for each of the 52 U.S States together with a diffusion showing the percentage of 52 U.S states with increasing unemployment. You can see that recently […]
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How can we forecast 30% upside for 2016 with RAVI?
The RecessionALERT Valuation Index (RAVI) is currently forecasting 30% growth for 2016 for the SP500 with its 1-year forecast model. “How the heck is this possible given current overvaluation of the market?” we can hear you say. Let us show you how this is calculated so we can put the forecast into context: Firstly, we know we have a very accurate 10-year forecast model with the RAVI: We can see that 10-year forecasts for the SP500 Total Return Index (including […]
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Bear market rules still in force
Our first bear market signal was issued on 1 September 2015 when the Composite Market Health Index (CMHI) dipped below zero. Since then we had a sustained deterioration of the CMHI components to reinforce the signal, coupled with high stock market volatility. Although market breadth features prominently in the CMHI, there is another way to identify the onset of bear markets for stocks by observing the behavior of the percentage of SP500 stocks trading above their 200-day moving average. In […]
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A new monthly leading US index
Many monthly leading indices published for the U.S have about 10 indicator components, and we wanted one that had at least double this. The components of the new index are all monthly time series and are as follows: 01.Labor Market Composite (19 indicators) 02.Housing Market Composite (6 indicators) 03.Enhanced Yield Curve (EYC) 04.Money Supply Aggregate 05.Stock Market 06.Margin Debt 07.Treasury/Corporate Bond market 08.Inventories & Sales 09.Sales of heavy duty trucks 10.Manufacturing : Durable Goods 11.Manufacturing : Weekly Overtime hours 12.Manufacturing […]
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A U.S Weekly Leading Economic Index
RecessionALERT.com has constructed a Weekly Leading Economic Index (WLEI) for the U.S Economy that draws from over 20 weekly time-series from the following broad categories Corporate Bond Market Composite Treasury Bond Market Composite Stock Market Composite Labor Market Composite Credit Market Composite Mortgage backed securities (MBS) The first five are shown below: Being a weekly growth index, it provides data with at most a 1-week lag, which is far timelier than the lag found on monthly economic indicators. Additionally, it […]
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Risk of U.S Economic Recession
A raft of analysts, perma-bears and bloggers are playing fast and loose with the R-word again. This is likely to reach a crescendo with the release today of the unexpected large drop in the ISM non-manufacturing survey. We recall a time in late 2011 when the mainstream perception was that we were headed for recession and we posted a widely read article that went against the mainstream, and attracted attention of some respected names: Given the amount of attention looming […]
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The SP-500 200-day average “Goodbye Kiss”
The SP-500 today has met back with its 200-day moving average after spending a “protracted period” of 46 trading days below it. Contrary to popular belief, history since 1972 shows this to be a bearish event, with more downside likely. Many participants on the stock markets like to use the 200-day moving average (200dma) to determine if we are in a bull or bear market. We deploy far more robust, diverse and accurate models as described in our highly popular research […]
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Yellen Labor Dashboard reaches target
“Full Employment” target reached Shortly after taking up office, Federal Reserve Chair Janet Yellen used her “jobs data dashboard” to justify the Fed’s easy money policies and to argue there’s still considerable slack in the labor market five years after the recession’s end. Seven of the nine gauges on this dashboard had not recovered to levels reached before the last recession, reinforcing her belief that the economy would need “extraordinary support” from the Federal Reserve for “some time to come.” It […]
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Global Slowdown – Does it affect the U.S?
There is no question that the Global Economy is languishing. Now, with weakness in US economic data starting to filter through, the big question that arises is if the U.S will be dragged down by the global economy. The U.S is a very insular economy and whilst there can be no doubt that global economic slowdowns do have an effect on the U.S economy, we show that the correlation between global recessions and U.S recessions is surprisingly low. EXHIBIT-A : Global […]
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Things that go bump in the night
The U.S economy appears unstoppable right now. Just about every leading and co-incident indicator you can think of is pointing to positive growth. Among the hundreds of indicators we follow for our models on a daily basis, we have discovered a few that are displaying worrying trends and flagging a future recession. It should be pointed out that a handful of indicators flagging recession should not mean we have to push the panic button. A large raft of indicators all concurring […]
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SP-500 Returns Forecast, 4Q2014
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 […]
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Stresses are building up in the system
Despite a steady rise in the SP-500 Index, clear and persistent financial stresses are starting to build up in the system. We construct a composite of the St. Louis Fed Financial Stress Index, the Cleveland Financial Stress Index, the Kansas City Financial Stress Index and the Chicago Fed National Financial Conditions Index as shown below: The average value of the composite, which begins in 1973, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. […]
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Valuation estimate of SP500 2015 returns : 2,246 target
The RecessionALERT Valuation Index (RAVI) is a multifactor valuation model that examines cyclically adjusted trailing SP-500 earnings (various multi-decade horizons), the SP-500 total-return index level, total stock market capitalization, Gross Domestic Product, non-financial corporate equities and liabilities, non-financial corporate business net-worth and percentage of investors’ allocation to stocks versus cash and bonds to determine 10, 5, 3, 2 and 1 year forecasts for the SP-500 Total Return Index (dividends re-invested). The in-sample accuracy of the various forecast horizons since 1970 are […]
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RecessionALERT Valuation Index (RAVI)
PART-1 There are currently 4 mainstream models used to forecast 10-year total returns on the SP-500 (dividends re-invested) The Shiller CAPE ratio (PE10) The Warren Buffet Indicator Tobin’s Q-Ratio Average Investor allocation to stocks The non-linear quarterly correlations between these four models (x-axes) and achieved 10-year future total returns (y-axes) on the SP-500 since 1970 are shown below: Whilst there have been successful variations that improve long-run 10-year return correlations slightly (such as John Hussmanns’ Peak Earnings version of the Shiller […]
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Valuations not at nose-bleed levels yet
The recent run in the major U.S stock indices has resulted in Shiller-PE charts being trotted out showing how far we are off the historical mean, implying a nasty pullback is in the works. The problem with a historical mean is that it is a single horizontal value on a chart that fails to take cognisance of any long-term trending the underlying valuation series may be experiencing. The static mean implies there is no valid reason stock market participants would be […]
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Fingerprints of a short-term market top
The SP-500 has rallied sharply since the 15th October bottom, recovering all her losses in a shorter time than it took to incur them. It was a very rare display of the opposite behavior to the norm where “the bull climbs the staircase and the bear comes down the elevator”, since in this case, the bear came down the elevator but the bull climbed up on a rocket. The question that now naturally arises is if this rally has gone […]
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Great Trough Detector Improvements
You will notice a new layout for the Great Trough Detector (GTR) chart as shown below. The Signal Panel has been revised to be more intuitive and we have added a new count panel below that: 1. The Signal Panel The first task of this panel is to highlight your two main opportunities: Class-B : When the 13Wk New Hi/Lo breadth signal prints a reading below 27.4 “Correction Warning” Class-A : When the 13Wk New Hi/Lo breadth signal prints a […]
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“Baby” correction belies verocity of breadth sell-off
The current stock market correction is diminutive in relative terms – hardly anything to sit up and take notice of. However an examination of underlying breadth deterioration reveals an astonishing plunge of the net new quarterly highs (the percentage of new quarterly highs less the percentage of new quarterly lows). This percentage has been languishing below 10 for 6 days now. Below is a historical chart showing periods where this breadth index was below 10% and for how many days […]
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New improvements
We have introduced three new improvements to the web site to enhance the user-experience; 1.Progress Loader Some of our pages, particularly the CHARTS page, can take some time to load due to the amount of historical data we allow you to view in the charts. If web site usage is heavy and/or the internet is very busy, this can sometimes lead to up to 10 second delays (US) or even 20 second delays (Asia) before pages are displayed on your screen. […]
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