We're close to "as good as it gets", but not quite there
The U.S. economy is close to “as good as it gets”, although it’s not quite there yet. You can see this through our Long Term Risk Model.
Long Term Risk typically reaches 80% before historical bear markets start.
*The above chart is a 2 month delayed chart. Members can access the real time chart here.
Meanwhile, the U.S. economy continues to exhibit extreme strength, as seen through NFIB’s Small Business Optimism and Heavy Truck Sales
Small business optimism
NFIB’s Small Business Optimism continues to hover near its highest level ever.
In my reflection from last month, we stated that “this economic expansion is ALMOST (but not quite) as good as it gets”.
Here’s what happens next to the S&P 500 when NFIB Small Business Optimism exceeds 107 (i.e. right now).
As you can see, there are 3 groups of data:
- 1983-1984
- 2004
- 2017-2018
From a long term perspective, this is a good sign for the U.S. stock market. Historically, Small Business Optimism deteriorates long before bear markets start.
Heavy Truck Sales
The latest data for Heavy Truck Sales surged to the highest level in this economic expansion.
As we’ve demonstrated in the past, Heavy Truck Sales tend to trend downwards before bear markets and recessions begin.
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Troy, do you use a “melt-up” criteria trying to predict the market top? That is, when the laymen max their credit cards to buy stocks and cab drivers start giving you stock advises? That happened in 1999-2000, do you foresee anything like that this time? Far as I understand, there is still lots of cash on the sidelines, especially given this year’s turmoil.
Hi Oskar,
No I do not. Because you cannot quantify a “melt up” based on every day anecdotes such as “everyone and their grandmother is buying”. What exactly counts as “everyone”?
Because it felt like “everyone” was buying stocks in 1995, just like “everyone” was buying stocks in 2000.
With that being said, we can use the Liquidity Problem Model to define a melt-up
https://bullmarkets.co/liquidityproblemmodel/
Thanks Troy. What is on the vertical axis of the liquidity graph? It’s clear that the higher that ratio, the lower liquidity and higher debt, so it must be debt/(what?)
Hi Oskar,
That’s the “liquidity problem” component of the big correction model
https://bullmarkets.co/medium-long-term-model-significant-correction-component/