Capital Market Indicators for September 14

Sep 14, 2020 / By Capital Market Consultants, Inc.
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The U.S. economy expanded in August but uncertainty continues to undermine it. From the bear market low on March 23 through September 9, the S&P 500 has returned 52%.

In an effort to address any questions that may arise regarding the “Economy” dial, Capital Markets offers a reminder of what the dial represents and how the data behind the dial is calculated.

The economy dial represents the three month rate of change of the Philly Fed’s Coincident Index and how this rate of change compares to historical three month rates of change, going back to January 1979. In other words, how does the current three month growth rate of the index (representing the economy) compare to past growth rates.

The current 100% reading means that the index (and, thus the economy) has never grown as fast as it has in the past three months. This is not surprising as we recently experienced the index’s largest three month drop during the shutdown. Historically, this data has been very slow moving as it represents the economy which also has historically been very slow moving. Much like a large ocean freighter, the economy rarely turns on a dime. The current environment is, of course, very unique.

U.S. Economy—Nonfarm payrolls increased by 1.37 million jobs in August as the unemployment rate fell to 8.4%.

  • We expect 2020 real U.S. GDP to contract about 8.0%. The economy is in a recessionary period.
  • Based on the Federal Reserve Bank of Philadelphia’s U.S. Coincident Index, our gauge of U.S. economic activity (above left) registers a May 2020 reading at the 100th percentile.
  • Recent developments:
    • As noted in the September 2 edition of the Fed’s Beige Book, the U.S. economy expanded in August, but “continued uncertainty and volatility related to the pandemic, and its effect on consumer and business activity, was a theme echoed across the country.”

Capital Markets—From the bear market low on March 23 through September 9, the S&P 500 has returned 52%.

  • Valuation:
    • Based on the S&P 500 trailing 12-month price-to-earnings ratio, our gauge of U.S. equity valuation (above center) registers a current reading in the 3rd percentile. Stock valuations are significantly higher than a year ago.
  • Sentiment:
    • Based on the National Association of Active Investment Manager’s Exposure Index, a contrarian indicator, our gauge of U.S. stock market sentiment (above right) registers a September 9, 2020 reading in the 70th percentile.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the reader.

Capital Market Consultants, Inc. (CMC), provides customized Outsourced Chief Investment Officer services to financial organizations and RIAs. CMC Unified Management Account portfolios, based on CMC manager research, are available to RIAs on all major independent custodial platforms.

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