Bear Market Persists - Be Cautious
Leading Economic Indicators – The Conference Board’s LEI turned down again. Over the past 20 years, each time the LEI has fallen to the -4% area the economy has fallen into a recession. To me this points to a likely extension of the bear market. Hopefully this isn’t a repeat of 2007 and 2008 where the index looked like it was recovering but then fell harder.
S&P 500 Index – The S&P 500 Index remains in a bear trend, putting in a series of lower lows and lower highs. Chart courtesy of www.stockcharts.com.
S&P 600 Small Cap Index – Small cap stocks are considered a proxy for the U.S. economy. The S&P 600 Small Cap Index remains in a bear trend, putting in a series of lower lows and lower highs. In September of last year the index had almost lost all of its’ gains going back to January 2020. Chart courtesy of www.stockcharts.com.
Recessions, Bear Markets, and Earnings – Keep in mind that during previous recessions, going back to the 1920s, the S&P 500 tends to post large losses and earnings tend to fall dramatically.
Key Takeaway – In my opinion the current market environment supports a conservative or preservation stance and investors should consider remaining cautious.
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DEFINITIONS
Conference Board Leading Economic Index - A American economic leading indicator intended to forecast future economic activity. It is calculated by The Conference Board, a non-governmental organization, which determines the value of the index from the values of ten key variables. These variables have historically turned downward before a recession and upward before an expansion.
Robert Shiller - Robert J. Shiller is Sterling Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of Management. He received his B.A. from the University of Michigan in 1967 and his Ph.D. in economics from the Massachusetts Institute of Technology in 1972. He has written on financial markets, financial innovation, behavioral economics, macroeconomics, real estate, statistical methods, and on public attitudes, opinions, and moral judgments regarding markets.
S&P 500 Index - The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90. The index is a capitalization weighted index of the 500 large companies listed on various stock exchanges (such as the NYSE or NASDAQ). The S&P 500 was developed and continues to be maintained by S&P Dow Jones Indices, a joint venture majority-owned by S&P Global. The S&P 500 differs from the Dow Jones Industrial Average and the NASDAQ Composite index, because of its diverse constituency and weighting methodology. It is one of the most followed equity indices, and many consider it one of the best representations of the U.S. stock market.
S&P 600 Small Cap Index - The S&P SmallCap 600® seeks to measure the small-cap segment of the U.S. equity market. The index is designed to track companies that meet specific inclusion criteria to ensure that they are liquid and financially viable.
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