Stocks on November 13, 2018: fundamental outlook


*Go to the blog for my latest market outlook. Members can go here to see our trading model’s latest updates and how we’re trading the U.S. stock market right now based on these models.
The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.

Thoughts

  1. Yield curve has yet to invert. This bull market is not over.
  2. Financial conditions are still relatively easy, which suggests that this bull market is not over.
  3. Banks’ lending standards are still easing. This is still a bull market in stocks.
  4. Delinquency Rate is trending downwards. This is not how bear markets start.

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1 am: Yield curve has yet to invert. This bull market is not over.
The 10 year – 2 year yield curve inverted before prior recessions and bear markets began. This yield curve has yet to invert, which suggests that the bull market is not over.

This yield curve will likely invert at the start of 2019 after 1 more rate hike (December 2018), hence why we think a bear market will begin sometime in 2019.
Like the 10 year – 2 year yield curve, the 10 year – Fed Funds yield curve has yet to invert. This yield curve will likely invert in Q2 2019, which is why we think a more accurate estimate for the bull market top is after Q1 2019.

1 am: Financial conditions are still relatively easy, which suggests that this bull market is not over.
Despite rising interest rates, financial conditions are still relatively easy in the U.S. In the past, financial conditions were tighter when recessions and bear markets began.
This suggests that this is still a bull market right now.


1 am: Banks’ lending standards are still easing. This is still a bull market in stocks.
Banks’ lending standards are still easing (trending downwards).

Easing lending standards is a medium-long term bullish sign for the stock market and economy. It gives this aged economic expansion and bull market a little more juice via easier loans and more credit.
As you can see, lending standards tend to get tighter in the last rally of a bull market.

1 am: Delinquency Rate is trending downwards. This is not how bear markets start.
Delinquency Rates on loans from commercial banks are still trending downwards.

This is a medium-long term bullish sign for the stock market and economy. As you can see in the chart below, Delinquency Rates tend to trend higher before equity bear markets and economic recessions begin.

Read Stocks on November 9, 2018: outlook

Outlook

Here’s what I think will happen based on our discretionary outlook:

  1. The S&P 500 has less than 1 year left in this bull market (bull market top sometime in Q2 2019).
  2. The recent decline is just a correction in a bull market. The medium term direction is still bullish  (i.e. trend for the next 6-9 months)

Our discretionary outlook is usually, but not always, a reflection of how we’re trading the markets right now. We trade based on our clear, quantitative trading models, such as the Medium-Long Term Model.
Members can see exactly how we’re trading the U.S. stock market right now based on our trading models.

4 comments add yours

  1. No, never been. This market has to make new highs before we can conclude anything (more highs or double top). crashing from there wold be a first time in all US market history.

  2. In August 1978, the curve peaked after a bull market top. Most of the time, the yield curve is not wrong. However, the Fed’s intervention in the bond market makes reading the yield curve more difficult.

  3. The market likes to fill gaps. Today the S&P filled the gap between 10/30 and 10/31. I didn’t feel good if you’re long, but this would seem to be a positive going forward.

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