S&P500 And Long-Term VIX Chart – Through February 5, 2018

For reference purposes, below is a chart of the S&P500 and VIX from year 2003 through Monday’s (February 5, 2018) close.  The closing price for the S&P500 was 2648.94 and the VIX had a closing value of 37.32.  A dashed blue line depicts the VIX value of 20.  Price labels are also shown:

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

VIX and S&P500 chart since 2003

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2648.94 as this post is written

Stock Market Capitalization To GDP – Through Q4 2017

“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 February 5, 2018 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:

stock 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 2648.94 as this post is written

Janet Yellen Interview February 4, 2018

On February 4, 2018 there was an interview of Janet Yellen that aired on the CBS “Sunday Morning” show.  The interview was titled “Janet Yellen:  The exit interview.”

Below are segment excerpts and Janet Yellen’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the interview:

Under Yellen’s leadership, the Board slowly raised interest rates, and also slowly started cutting back on bonds and other assets the Fed bought up to ease the recession.

It worked!  Inflation is now less than 2%, and unemployment — at 6.7% when she took office — has dropped significantly, to 4.1%.

“The labor market has become stronger,” Yellen said. “I believe that since I’ve become Chair, several million jobs have been created, [something] on the order of ten million.”

also:

As for whether Yellen’s view that the stock market (which plummeted on Friday) has been too high in recent months:

“Well, I don’t want to say too high.  But I do want to say high. Price-earnings ratios are near the high end of their historical ranges.  If you look at commercial real estate prices, they are quite high relative to rents.  Now, is that a bubble or is too high?  And there it’s very hard to tell.  But it is a source of some concern that asset valuations are so high.

“What we look at is, if stock prices or asset prices more generally were to fall, what would that mean for the economy as a whole?  And the financial system is much better capitalized. The banking system is more resilient.  And I think our overall judgment is that, if there were to be a decline in asset valuations, it would not damage unduly the core of our financial system.”

“We’re in the ninth year of a recovery; can it really keep going like this?” asked Braver.

“Yes, it can keep going.  Recoveries don’t die of old age!”

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2722.07 as this post is written

Recession Probability Models – February 2018

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 February 2, 2018 using data through January) this “Yield Curve” model shows a 10.4146% probability of a recession in the United States twelve months ahead.  For comparison purposes, it showed a 11.4585% probability through December, 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 February 1, 2018, currently shows a .46% probability using data through November.

Here is the FRED chart (last updated February 1, 2018):

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 February 5, 2018:

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 January 12 post titled “The January 2018 Wall Street Journal Economic Forecast Survey“ economists surveyed averaged a 13.11% 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 2762.13 as this post is written

VIX Weekly And Monthly Charts Since The Year 2000 – February 5, 2018 Update

For reference purposes, below are two charts of the VIX from year 2000 through Friday’s (February 2, 2018) close, which had a closing value of 17.31.

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 Chart

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 chart

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

Charts Of Equities’ Performance Since March 9, 2009 And January 1, 1980 – February 4, 2018 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, AMZN, 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

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 monthly since 1980

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

Long-Term Stock Charts DJIA, DJTA, S&P500, And Nasdaq Composite

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 – February 2, 2018:

DJIA since 1900

The Dow Jones Transportation Average, from 1900 – February 2, 2018:

DJTA since 1900

The S&P500, from 1925 – February 2, 2018:

S&P500 since 1925

The Nasdaq Composite, from 1978 – February 2, 2018:

Nasdaq Composite since 1978

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2762.13 as this post is written

Monthly Changes In Total Nonfarm Payrolls – February 2, 2018 Update

For reference purposes, below are five charts that display growth in payroll employment, as depicted by the Total Nonfarm Payrolls measures (FRED data series PAYEMS).

PAYEMS, which is seasonally adjusted, is defined in Financial Reserve Economic Data [FRED] as:

All Employees: Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).

This measure provides useful insights into the current economic situation because it can represent the number of jobs added or lost in an economy. Increases in employment might indicate that businesses are hiring which might also suggest that businesses are growing. Additionally, those who are newly employed have increased their personal incomes, which means (all else constant) their disposable incomes have also increased, thus fostering further economic expansion.

Generally, the U.S. labor force and levels of employment and unemployment are subject to fluctuations due to seasonal changes in weather, major holidays, and the opening and closing of schools. The Bureau of Labor Statistics (BLS) adjusts the data to offset the seasonal effects to show non-seasonal changes: for example, women’s participation in the labor force; or a general decline in the number of employees, a possible indication of a downturn in the economy. To closely examine seasonal and non-seasonal changes, the BLS releases two monthly statistical measures: the seasonally adjusted All Employees: Total Nonfarm (PAYEMS) and All Employees: Total Nonfarm (PAYNSA), which is not seasonally adjusted.

The series comes from the ‘Current Employment Statistics (Establishment Survey).’

The source code is: CES0000000001

The first chart shows the monthly change in Total Nonfarm Payrolls from the year 2000 through the current January 2018 report, with value of 200,000:

(click on charts to enlarge images)

Total Nonfarm Payrolls monthly change since 2000

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: All Employees: Total nonfarm [PAYEMS] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 2, 2018;

https://research.stlouisfed.org/fred2/series/PAYEMS

The second chart shows a longer-term chart of the same month-over-month change in Total Nonfarm Payrolls (reports of January 1940 through the present report of January 2018):

PAYEMS Monthly Change

The third chart shows the aggregate number of Total Nonfarm Payrolls, from January 1939 – January 2018 (January 2018 value of 147.810 million):

Total Nonfarm Payrolls

The fourth chart shows this same aggregate number of Total Nonfarm Payrolls measure as seen above but presented on a LOG scale:

Total Nonfarm Payrolls

Lastly, the fifth chart shows the Total Nonfarm Payrolls number on a “Percent Change from Year Ago” basis from January 1940 – January 2018: (January 2018 value of 1.5%)

Total Nonfarm Payrolls Percent Change From Year Ago

_________

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 2766.32 as this post is written

Average Hourly Earnings Trends

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

Along these lines, one of the measures showing disconcerting trends is that of hourly earnings.

While the concept of hourly earnings can be defined and measured in a variety of ways, below are a few charts that I believe broadly illustrate problematic trends.

The first chart depicts Average Hourly Earnings Of All Employees: Total Private (FRED series CES0500000003)(current value = $26.74):

(click on chart to enlarge image)(chart last updated 2-2-18)

CES0500000003

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of All Employees:  Total Private [CES0500000003] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 2, 2018:

http://research.stlouisfed.org/fred2/series/CES0500000003

This next chart depicts this same measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 2-2-18)

CES0500000003 Percent Change From Year Ago

There are slightly different measures available from a longer-term perspective. Pictured below is another measure, the Average Hourly Earnings of Production and Nonsupervisory Employees – Total Private (FRED series AHETPI)(current value = $22.34):

(click on chart to enlarge image)(chart last updated 2-2-18)

AHETPI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Average Hourly Earnings of Production and Nonsupervisory Employees:  Total Private [AHETPI] ; U.S. Department of Labor: Bureau of Labor Statistics;  accessed February 2, 2018:

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

Pictured below is this AHETPI measure on a “Percentage Change From A Year Ago” basis.   While not totally surprising, I find the decline from 2009 and subsequent trend to be disconcerting:

(click on chart to enlarge image)(chart last updated 2-2-18)

AHETPI Percent Change From Year Ago

I will continue to actively monitor these trends, especially given the post-2009 dynamics.

_________

I post various economic 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 2772.85 this post is written

U-3 And U-6 Unemployment Rate Long-Term Reference Charts As Of February 2, 2018

Shortly after each monthly employment report I have been posting a continual series titled “3 Critical Unemployment Charts.”

Of course, there are many other employment charts that can be displayed as well.

For reference purposes, below are the U-3 and U-6 Unemployment Rate charts from a long-term historical perspective.  Both charts are from the St. Louis Fed site.  The U-3 measure is what is commonly referred to as the official unemployment rate; whereas the U-6 rate is officially (per Bureau of Labor Statistics) defined as:

Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

Of note, many economic observers use the U-6 rate as a (closer) proxy of the actual unemployment rate rather than that depicted by the U-3 measure.

Here is the U-3 chart, currently showing a 4.1% unemployment rate:

(click on charts to enlarge images)(charts updated as of 2-2-18)

unemployment rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Civilian Unemployment Rate [UNRATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 2, 2018;

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

Here is the U-6 chart, currently showing a 8.2% unemployment rate:

U-6 rate

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis: Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons  [U6RATE] ; U.S. Department of Labor: Bureau of Labor Statistics; accessed February 2, 2018;

http://research.stlouisfed.org/fred2/series/U6RATE

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2773.41 as this post is written