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April 23, 2019: fundamental outlook for stocks

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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. Delinquency Rate on All Loans is trending down. A bullish sign for the stock market. New Home Sales is trending sideways. Not bearish for stocks yet Building Permits is still trending downwards. A bearish factor for stocks. Housing Months of Supply is falling. Not a long term bearish factor for stocks Delinquency Rate on All Loans is trending down. A bullish sign for the stock market. The Delinquency Rate on All Loans

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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. Delinquency Rate on All Loans is trending down. A bullish sign for the stock market.
  2. New Home Sales is trending sideways. Not bearish for stocks yet
  3. Building Permits is still trending downwards. A bearish factor for stocks.
  4. Housing Months of Supply is falling. Not a long term bearish factor for stocks

Delinquency Rate on All Loans is trending down. A bullish sign for the stock market.

The Delinquency Rate on All Loans is trending down.

April 23, 2019: fundamental outlook for stocks

This suggests that the bull market and economic expansion are not over. In the past, the Delinquency Rate trended higher before bear markets and recessions began.

New Home Sales is trending sideways. Not bearish for stocks yet

The latest reading for New Home Sales went up. However, the key point is that New Home Sales is trending sideways.

April 23, 2019: fundamental outlook for stocks

In the past, New Home Sales trended downwards before bear markets and recessions began.

April 23, 2019: fundamental outlook for stocks

This is not a long term bearish factor for stocks right now.

April 23, 2019: fundamental outlook for stocks

Building Permits is still trending downwards. A bearish factor for stocks.

The latest reading for Building Permits fell a little. However, the key point is that Building Permits is still trending downwards.

April 23, 2019: fundamental outlook for stocks

In the past, Building Permits trended downwards before bear markets and recessions began.

April 23, 2019: fundamental outlook for stocks

This is a bearish factor for stocks right now.

*You can see that while Housing Starts and Building Permits are trending down, New Home Sales is trending sideways. So right now, the overall housing outlook is mixed. Things will become clearer over the next few months as we get more data.

Housing Months of Supply is falling. Not a long term bearish factor for stocks

Housing Months of Supply has fallen recently.

April 23, 2019: fundamental outlook for stocks

Housing Months of Supply trended higher before many historical bear markets and recessions.

April 23, 2019: fundamental outlook for stocks

April 23, 2019: fundamental outlook for stocks

Read Where will stocks go next? Let’s look at various factors

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 mostly mixed, although there is a bullish lean.
  3. We don’t predict the short term because the short term is always extremely random. At the moment, the short term does seem to have a slight bearish lean.
  4. In summary, 12-24 months = bearish, 12 months = neutral, 6-9 months = slightly bullish.

Goldman Sachs’ Bull/Bear Indicator demonstrates that risk:reward does favor long term bears.

April 23, 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

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