Stock Market Capitalization To GDP – Through Q4 2016 – Update

“Stock market capitalization to GDP” is a notable and important metric regarding stock market valuation.  In February of 2009 I wrote of it in “Does Warren Buffett’s Market Metric Still Apply?

Doug Short has recently published a post depicting this “stock market capitalization to GDP” metric.

As seen in his April 4, 2017 post titled “Market Cap to GDP:  An Updated Look at the Buffett Valuation Indicator” he shows two different versions, varying by the definition of stock market capitalization. (note:  additional explanation is provided in his post.)

For reference purposes, here is the first chart, with the stock market capitalization as defined by the Federal Reserve:

(click on charts to enlarge images)

Stock Market Capitalization To GDP

Here is the second chart, with the stock market capitalization as defined by the Wilshire 5000:

Market Capitalization To GDP

As one can see in both measures depicted above, “stock market capitalization to GDP” is at notably high levels from a long-term historical perspective.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2352.95 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI) is one index that is supposed to measure stress in the financial system.  Its reading as of the March 30, 2017 update (reflecting data through March 24, 2017) is -1.32.

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on April 5, 2017 incorporating data from January 5,1973 through March 31, 2017, on a weekly basis.  The March 31, 2017 value is -.76:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 5, 2017:

http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on April 5, 2017 incorporating data from January 5,1973 through March 31, 2017, on a weekly basis.  The March 31 value is -.17:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed April 5, 2017:

http://research.stlouisfed.org/fred2/series/ANFCI

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this blog are aware, I do not necessarily agree with what they depict or imply.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2374.87 as this post is written

Recession Probability Models – April 2017

There are a variety of economic models that are supposed to predict the probabilities of recession.

While I don’t agree with the methodologies employed or probabilities of impending economic weakness as depicted by the following two models, I think the results of these models should be monitored.

Please note that each of these models is updated regularly, and the results of these – as well as other recession models – can fluctuate significantly.

The first is the “Yield Curve as a Leading Indicator” from the New York Federal Reserve.  I wrote a post concerning this measure on March 1, 2010, titled “The Yield Curve as a Leading Indicator.”

Currently (last updated April 4, 2017 using data through March) this “Yield Curve” model shows a 5.1834% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 4.1727% probability through February, and a chart going back to 1960 is seen at the “Probability Of U.S. Recession Predicted by Treasury Spread.” (pdf)

The second model is from Marcelle Chauvet and Jeremy Piger.  This model is described on the St. Louis Federal Reserve site (FRED) as follows:

Smoothed recession probabilities for the United States are obtained from a dynamic-factor markov-switching model applied to four monthly coincident variables: non-farm payroll employment, the index of industrial production, real personal income excluding transfer payments, and real manufacturing and trade sales. This model was originally developed in Chauvet, M., “An Economic Characterization of Business Cycle Dynamics with Factor Structure and Regime Switching,” International Economic Review, 1998, 39, 969-996. (http://faculty.ucr.edu/~chauvet/ier.pdf)

Additional details and explanations can be seen on the “U.S. Recession Probabilities” page.

This model, last updated on April 3, 2017, currently shows a 1.36% probability using data through January.

Here is the FRED chart (last updated April 3, 2017):

RECPROUSM156N

Data Source:  Piger, Jeremy Max and Chauvet, Marcelle, Smoothed U.S. Recession Probabilities [RECPROUSM156N], retrieved from FRED, Federal Reserve Bank of St. Louis, accessed April 4, 2017:

http://research.stlouisfed.org/fred2/series/RECPROUSM156N

The two models featured above can be compared against measures seen in recent blog posts.  For instance, as seen in the March 16 post titled “The March 2017 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 14.41% probability of a U.S. recession within the next 12 months.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2360.16 as this post is written

April 4, 2017 Gallup Poll Results On Economic Confidence – Notable Excerpts

On April 4, 2017 Gallup released the poll results titled “U.S. Economic Confidence Index Unchanged in March.”

Notable excerpts include:

Still, Americans’ economic confidence has remained positive overall for 20 straight weeks — since the week after the presidential election in November — making it the longest positive streak since Gallup began tracking the measure.

also:

Gallup’s U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans were to say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans were to say the economy is doing poorly and getting worse.

In March, one-third of U.S. adults (33%) described economic conditions as “excellent” or “good,” while 20% rated them as “poor.” This resulted in a current conditions score of +13 for the month — the same as in February.

Meanwhile, 49% of U.S. adults said economic conditions were “getting better,” while 45% said they were “getting worse,” resulting in an economic outlook score of +4 — similar to February’s +3 for this component.

Here is an accompanying chart of the two components of the Gallup Economic Confidence Index, discussed above:

Gallup U.S. Economic Confidence components

Here is an accompanying chart of the Gallup Economic Confidence Index:

Gallup U.S. Economic Confidence Index

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2351.00 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – April 4, 2017 Update

For reference purposes, below are two charts of the VIX from year 2000 through Monday’s (April 3, 2017) close, which had a closing value of 12.38.

Here is the VIX Weekly chart, depicted on a LOG scale, with the 13- and 34-week moving averages, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

VIX Weekly from year 2000

Here is the VIX Monthly chart, depicted on a LOG scale, with the 13- and 34-month moving average, seen in the cyan and red lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

VIX Monthly LOG

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2358.84 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – April 3, 2017 Update

In the March 9, 2012 post (“Charts of Equities’ Performance Since March 9, 2009 And January 1, 1980“) I highlighted two charts for reference purposes.

Below are those two charts, updated through the latest daily closing price.

The first is a daily chart of the S&P500 (shown in green), as well as five prominent (AAPL, IBM, WFM, SBUX, CAT) individual stocks, since 2005.  There is a blue vertical line that is very close to the March 6, 2009 low.  As one can see, both the S&P500 performance, as well as many stocks including the five shown, have performed strongly since the March 6, 2009 low:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 and prominent stocks since 2005

This next chart shows, on a monthly LOG basis, the S&P500 since 1980.  I find this chart notable as it provides an interesting long-term perspective on the S&P500′s performance.  The 20, 50, and 200-month moving averages are shown in blue, red, and green lines, respectively:

(click on chart to enlarge image)(chart courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 since 1980

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2359.90 as this post is written

Long-Term Stock Charts DJIA – DJTA – S&P500 – Nasdaq Indexes

StockCharts.com maintains long-term historical charts of various major stock market indices, interest rates, currencies, commodities, and economic indicators.

As a long-term reference, below are charts depicting various stock market indices for the dates shown.  All charts are depicted on a monthly basis using a LOG scale.

(click on charts to enlarge images)(charts courtesy of StockCharts.com)

The Dow Jones Industrial Average, from 1900 – March 31, 2017:

DJIA since 1900

The Dow Jones Transportation Average, from 1900 – March 31, 2017:

DJTA 1900-March 31, 2017

The S&P500, from 1925 – March 31, 2017:

S&P500 from 1900-March 31, 2017

The Nasdaq Composite, from 1978 – March 31, 2017:

Nasdaq Composite 1978 - March 31 2017

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2363.87 as this post is written

U.S. Dollar Decline – April 3, 2017 Update

U.S. Dollar weakness is a foremost concern of mine.  As such, I have extensively written about it.  I am very concerned that the actions being taken to “improve” our economic situation will dramatically weaken the Dollar.  Should the Dollar substantially decline from here, as I expect, the negative consequences will far outweigh any benefits.  The negative impact of a substantial Dollar decline can’t, in my opinion, be overstated.

The following three charts illustrate various technical analysis aspects of the U.S. Dollar, as depicted by the U.S. Dollar Index.

First, a look at the monthly U.S. Dollar from 1983.  This clearly shows a long-term weakness, with the blue line showing technical support until 2007, and the red line representing a (past) trendline:

(charts courtesy of StockCharts.com; annotations by the author)

(click on charts to enlarge images)

U.S. Dollar Index

Next, another chart, this one focused on the daily U.S. Dollar since 2000 on a LOG scale.  The red line represents a (past) trendline.  The gray dotted line is the 200-day M.A. (moving average):

U.S. Dollar Daily

Lastly, a chart of the Dollar on a weekly LOG scale.  There are two clearly marked past channels, with possible technical support depicted by the dashed light blue line:

U.S. Dollar Weekly LOG

I will continue providing updates on this U.S. Dollar situation regularly as it deserves very close monitoring…

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2362.72 as this post is written

Median Household Income Chart

I have written many blog posts concerning the worrisome trends in income and earnings.

Doug Short, in his March 30, 2017 post titled “February Real Median Household Income:  Higher in February” produced the chart below.  It is based upon data from Sentier Research, and it shows both nominal and real median household incomes since 2000, as depicted.  As one can see, post-recession real median household income (seen in the blue line since 2009) remains worrisome.

(click on chart to enlarge image)

U.S. Median Household Income

As Doug mentions in his aforementioned post, regarding the change in real median household incomes:

As the excellent data from Sentier Research makes clear, the mainstream U.S. household was struggling before the Great Recession. At this point, real household incomes are about where they were during the Great Recession.

Among other items seen in his blog post is a chart depicting each of the two (nominal and real household incomes) data series’ percent change over time since 2000.

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 2364.27 as this post is written

Corporate Profits As A Percentage Of GDP

In the last post (“4th Quarter 2016 Corporate Profits“) I displayed, for reference purposes, a long-term chart depicting Corporate Profits After Tax.

There are many ways to view this measure, both on an absolute as well as relative basis.

One relative measure is viewing Corporate Profits as a Percentage of GDP.  I feel that this metric is important for a variety of reasons.  As well, the measure is important to a variety of parties, including investors, businesses, and government policy makers.

As one can see from the long-term chart below (updated through the fourth quarter), (After Tax) Corporate Profits as a Percentage of GDP is at levels that can be seen as historically (very) high.  While there are many reasons as to why this is so, from a going-forward standpoint I think it is important to recognize both that such a notable condition exists, as well as contemplate and/or plan for such factors and conditions that would come about if (and in my opinion “when”) a more historically “normal” ratio of Corporate Profits as a Percentage of GDP occurs.  This topic can be very complex in nature, and depends upon myriad factors.  In my opinion it deserves far greater recognition.

(click on chart to enlarge image)

Corporate Profits as a Percentage of GDP

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed March 30, 2017

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2369.94 as this post is written