Thursday , May 23 2019
Home / Bull Markets / March 12, 2019: fundamental outlook for stocks

March 12, 2019: fundamental outlook for stocks

by
Troy
My articles My books
Follow on:
Summary:
The economy and stock market move in the same direction in the long term. Hence, leading economic indicators are also leading indicators for the stock market. Thoughts *We’re seeing mixed readings in the leading economic indicators right now. This is typically what happens towards the end of bull markets, when leading indicators start to deteriorate one at a time. Financial conditions are very loose. Not yet a long term bearish sign for the stock market. The yield curve has not yet inverted. This is not yet a long term bearish sign for stocks, but will be when the yield curve inverts. Banks’ lending standards have tightened dramatically.  If this persists, long term bulls should watch out. Read Is the stock market still in a bear market? Financial conditions are very loose. Not

Topics:
Troy considers the following as important:

This could be interesting, too:

Troy writes Certain parts of the market are being hammered. What this means for the S&P

Troy writes Several other markets and indicators are not confirming the stock market’s rally

Troy writes Market outlook: stock market’s medium term is still bullish, but biggest short term risk is the trade war

Troy writes May 16, 2019: leading indicators macro update

The economy and stock market move in the same direction in the long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

*We’re seeing mixed readings in the leading economic indicators right now. This is typically what happens towards the end of bull markets, when leading indicators start to deteriorate one at a time.

  1. Financial conditions are very loose. Not yet a long term bearish sign for the stock market.
  2. The yield curve has not yet inverted. This is not yet a long term bearish sign for stocks, but will be when the yield curve inverts.
  3. Banks’ lending standards have tightened dramatically.  If this persists, long term bulls should watch out.

Read Is the stock market still in a bear market?

Financial conditions are very loose. Not yet a long term bearish sign for the stock market.

Financial conditions are still very loose despite the stock market’s crash in Q4 2018.

March 12, 2019: fundamental outlook for stocks

March 12, 2019: fundamental outlook for stocks

This is not a long term bearish factor for the stock market right now because historically, financial conditions tightened significantly before bear markets and recessions started.

March 12, 2019: fundamental outlook for stocks

The yield curve has not yet inverted. This is not yet a long term bearish sign for stocks, but will be when the yield curve inverts.

The main parts of the yield curve have not yet inverted.

March 12, 2019: fundamental outlook for stocks
  1. 10 year – 2 year yield curve
  2. 10 year – 3 month yield curve

In the past, economic recessions and bear markets came AFTER these parts of the yield curve inverted.

March 12, 2019: fundamental outlook for stocks

March 12, 2019: fundamental outlook for stocks

Not yet long term bearish for stocks, but something to watch out for because the yield curve is so close to inverting.

March 12, 2019: fundamental outlook for stocks

March 12, 2019: fundamental outlook for stocks

Banks’ lending standards have tightened dramatically.  If this persists, long term bulls should watch out.

The latest reading for Banks’ Lending Standards tightened significantly. This is important, because credit is the lifeblood of the U.S. economy.

March 12, 2019: fundamental outlook for stocks

One data-point does not make a trend, so this is not yet a long term bearish factor. But if Lending Standards continue to trend higher throughout 2019, long term bulls should watch out.

March 12, 2019: fundamental outlook for stocks

In the past, Lending Standards tightened before bear markets and economic recessions began.

Conclusion

Here is our discretionary market outlook:

  1. The U.S. stock market’s long term risk:reward is no longer bullish. In a most optimistic scenario, the bull market probably has 1 year left. Long term risk:reward is more important than trying to predict exact tops and bottoms.
  2. The medium term direction (e.g. next 6-9 months) is more bullish than bearish.
  3. The stock market’s short term has a bearish lean due to the large probability of a pullback/retestFocus on the medium-long term (and especially the long term) because the short term is extremely hard to predict.

Goldman Sachs’ Bull/Bear Indicator demonstrates that while the bull market’s top isn’t necessarily in, risk:reward does favor long term bears.

March 12, 2019: fundamental outlook for stocks

Our discretionary outlook does not reflect how we trade the markets right now. We trade based on our quantitative trading models. When our discretionary outlook conflicts with our models, we always follow our models.

Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

Click here for more market analysis

About Troy

Leave a Reply

Your email address will not be published. Required fields are marked *