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Category: Chart of the Week

This indicator, designed by Goldman Sachs to signal bear market risk, is at its highest levels from the last 50 years. It is based on measures of equity valuation, growth momentum, unemployment rates, inflation and the yield curve. It attained peaks towards the end of the internet bubble and near the end of the housing bubble. The gauge often precedes a bear market but is sometimes indicative of a prolonged period of low index returns.

Raging Bull Chart

Another metric on investor behavior is the Haver Analytics/Citi Research Panic/Euphoria model. The model relies on their Market Sentiment Composite. It is intended to track the mood of the investor base and is used as a contrary signal. Note below that forward returns based on euphoric readings, are low, meaning that the market tends to fall or tread water after the indicator breaches the upper threshold.

 Investors have returned to favoring growth stocks.

Investors have returned to favoring growth stocks. July appears to have been an aberration in that growth characteristics lagged. Through August and into the first week of September, companies with high forecast growths are leading the market again.

It’s rare to see such a wide divergence between world and U.S. markets. Many Asian and European banks are hitting 52-week lows, which is suggestive of a deteriorating world- wide environment. While the U.S. may weather the storm better than emerging markets, it does appear that many economies are suffering. Examples of countries with economies in danger of toppling include Brazil, Turkey, India and South Africa.

By John Del Vecchio

One of the hottest job markets in the U.S. is the trucking industry. Business is booming. A major shortage of drivers has led to a spike in wages as well as other perks such as signing bonuses. While trucking is hot, inflation is heating up too.

The underlying price pressures in transportation and logistics, as well as raw materials persist. The trend is strong and is a factor into why the Federal Reserve will likely continue to raise rates.

The change in pricing for the General Freight Trucking industry has rebounded and now growing by double digits.

Of course, this will start to be reflected in prices elsewhere as companies feel the pinch from higher delivery costs. This past earnings season we saw packaged food companies warn of higher transportation costs. Expect that to show up in your grocery bill in the near future!

Famed market guru the late Martin Zweig noticed the market usually under performed dramatically over the years when the Federal Reserve raised interest rates three times during a given cycle.

Why?

  • Higher rates increase corporate financing costs, weakening earnings.
  • Rate hikes also increase investor margin expenses, which is particularly dangerous now when there has been a record amount of stock bought on margin.
  • The Fed raised rates in March and June this year following three rate hikes last year.

    The Fed says it will raise rates two more times in 2018.

    The chart from NDR shows when the 3 steps and stumble rule was followed by declines in the Dow Jones Industrial Average going all the way back to 1915.

    What does this all mean?

    The stock market could be overdue for a major downturn.

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