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• A reliable source for recession forecasting is the unemployment rate (UER), which can provide signals for the beginnings and ends of recessions.
• The model was published in 2012 and has correctly signaled the 2020 recession.
• The latest UER (August 2023) is 3.8%, signifying no recession. However, if the September UER is 4% or higher a recession will be signaled according to the model.

• The average of S&P 500 for July-2023 was 4,497 (4% down from Dec-2021 high average of 4,675) and is 859 points higher than the corresponding long-term trend value of 3,638.
• For the S&P 500 to reach the corresponding long-trend value would entail a 20% decline from the July average value, indicating that the S&P 500 is moderately overvalued.
• The Shiller CAPE-ratio is at 30.9, 19% higher than its 35-year moving average (MA35), currently at 26.1, forecasting a 10-year annualized real return of about 6.5%.
• The long-term trend indicates a forward 10-year annualized real return of 4.4%

• Knowing when the U.S. economy is heading for recession is paramount to successful investment decisions.
• Our weekly Business Cycle Index would have provided early reliable warnings for the past seven recessions and signaled the Covid 2020 recession one week late.
• The BCIg has signaled a recession warning mid March 2023, but BCIg recovered and is no longer signalling a recession.
• However the BCIw, also on recovery path, continues to signal a recession which now is estimated to begin in 9 to 22 weeks.
• It is too early to say if a recession has been averted, more likely is it is delayed towards the end the end of 2023 or begin 2024.

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• This ETF trading model uses the Conference Board Leading Economic Index to determine “Risk-On” periods for equities.
• A universe is defined from the SPDR, Vanguard, and PowerShares ETF providers for the sectors healthcare, energy, communication, technology, and general multi-sector funds, holding large-mega cap stocks from the United States.
• The model selects 3 ETFs from the previously defined universe at the beginning of a “Risk-On” period and holds these ETFs continuously until the end of the “Risk-On” period.
• During “Risk-Off” periods for equities it goes to the gold ETF (GLD) to maximize returns. ETF (BND) is also a suitable alternative to GLD.
• The simulation shows that this strategy would have produced over 7-times the total return of SPY with similar risk.

• The average of S&P 500 for March-2023 was 3,969 (15% down from Dec-2021 average of 4,675) and is 384 points higher than the corresponding re-calibrated long-term trend value of 3,585.
• For the S&P 500 to reach the corresponding long-trend value would entail a 10% decline from the March average value, indicating that the S&P 500 is not significantly overvalued anymore.
• The Shiller CAPE-ratio is at 27.9, 8% higher than its 35-year moving average (MA35), currently at 25.9, forecasting a relatively high 10-year annualized real return of about 7.3%.
• The long-term trend indicates a forward 10-year annualized real return of 5.5%
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.

• Knowing when the U.S. economy is heading for recession is paramount to successful investment decisions.
• Our weekly Business Cycle Index would have provided early reliable warnings for the past seven recessions and signaled the Covid 2020 recession one week late.
• The Department of Labor backward revised nearly two years of seasonal adjusted data.
• The BCIg is now signalling a recession since mid March 2023 with a 12 weeks average lead time.
• The BCIw is now signalling a recession, earliest in 5 weeks but not later than 17 weeks.

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• The average of S&P 500 for Nov-2022 was 3,917 (16% down from Dec-2021 average of 4,675) and is 385 points higher than the corresponding re-calibrated long-term trend value of 3,532.
• For the S&P 500 to reach the corresponding long-trend value would entail a 10% decline from the November average value, indicating that the S&P 500 is not significantly overvalued anymore.
• The Shiller CAPE-ratio is at 28.3, 10% higher than its 35-year moving average (MA35), currently at 25.8, forecasting a relatively high 10-year annualized real return of about 7.2%.
• The long-term trend indicates a forward 10-year annualized real return of 5.5%
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.

• The best fit line and prediction band were re-calculated from Jan-1871 to Sep-2022. This added over 10 years of data after July-2012, the end date of the previous regression analysis.
• The average of S&P 500 for Oct-2022 was 3,726 (20% down from Dec-2021 average of 4,675) and is 207 points higher than the corresponding re-calibrated long-term trend value of 3,519.
• For the S&P 500 to reach the long-trend would entail only a 6% decline from the October average value, indicating that the S&P 500 is not significantly overvalued anymore.
• The Shiller CAPE-ratio is at 27.2, only 6% higher than its 35-year moving average (MA35), currently at 25.7, forecasting a relatively high 10-year annualized real return of about 7.5%.
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.

• The average of S&P 500 for September 2022 was 3,853 (18% down from December 2021 average of 4,675) and is still 1,243 points higher than the corresponding long-term trend value of 2,610.
• For the S&P 500 to reach the long-trend would entail a 32% decline from the September average value, possibly over a short period.
• The Shiller CAPE-ratio is at a level of 28.4. That is 10% higher than its 35-year moving average (MA35), currently at 25.7.
• The CAPE-MA35 ratio is at 1.10 (down from the December 2021 level of 1.51), forecasting a relatively high 10-year annualized real return of about 7.1%.
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
• The historic long-term trend indicates a September 2032 value of 4,943; a 10-year forward real annualized return of only 2.5% (up from the December 2021 forecast of 0.2%).

• Prior to recession the yield curve becomes inverted, as indicated by the Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) being less than 1.00.
• The FRR2-10 crosses 1.000  downward signifying that US economic activity is in the boom phase of the business cycle, nearing the next recession.
• The average lead time after FRR2-10 becomes less than 1.00 to the subsequent recession start was 14 months for the seven of the eight last recessions.

• The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
• For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
• The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
• The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
• The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).

• The average of S&P 500 for May 2022 was 4,040 (14% down from December 2021 average) and is still 1,469 points higher than the corresponding long-term trend value of 2,571.
• For the S&P 500 to reach the long-trend would entail a 36% decline from the May average value, possibly over a short period.
• The Shiller CAPE-ratio is at a level of 31.0. That is 21% higher than its 35-year moving average (MA35), currently at 25.6.
• The CAPE-MA35 ratio is at 1.21 (down from the December 2021 level of 1.51), forecasting a 10-year annualized real return of about 6.3%.
• However, rising inflation with a falling CAPE-MA35 ratio, similar to what occurred in the period 1964-1973, implies very low or negative 10-year forward annualized real returns.
• The historic long-term trend indicates a 10-year forward real annualized return of only 1.9% (up from the December 2021 forecast of 0.2%).

• Investment risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data, including inflation.
• This model seeks to determine effective asset allocation for risk-on and risk-off periods for equities considering the effect of inflation.
• Four risk scenarios are possible: risk-on & normal-inflation, risk-on & high-inflation, risk-off & normal-inflation, and risk-off & high-inflation. Different ETF groups apply to each risk scenario.
• From 2000 to 2022, switching accordingly between risk-related ETF groups would have produced an annualized return of about 39% versus 6.5% for buy and hold SPY.

• We tested nine asset classes which are supposed to provide protection against inflation according to an Investopedia article. The test period was from January 2005 to May 2022.
• Investopedia provides no definition for inflationary environment, but this analysis uses the 6-month moving average of the inflation rate and the University of Michigan: Inflation Expectation© series to define it.
• For this investigation we consider separately the inflationary periods which fall within the Risk-on and Risk-off phases for equities, as defined by the iM-Multi-Model Market Timer.
• From the asset classes listed by Investopedia only the Vanguard Real Estate ETF (VNQ) provided some inflation protection relative to the SPDR S&P 500 ETF (SPY).
• Better inflation protection is provided by energy sector ETFs XLE and PXE, but energy sector funds were not among the asset classes listed in the Investopedia article.

• The average of S&P 500 for February 2022 was 4436 (5% down from December 2021 average) and is still 1896 points higher than the corresponding long-term trend value of 2540.
• A reversal to the long-trend would entail a 43% decline, possibly over a short period aggravated by the imminent S&P500 death cross.
• The Shiller CAPE-ratio is at a level of 35.9 (down 7.2% from its recent peak of 38.7). That is 41% higher than its 35-year moving average (MA35), currently at 25.5.
• The CAPE-MA35 ratio is 1.41 (down from the end of December 2021 level of 1.51), forecasting a 10-year annualized real return of about 4.6%.
• The historic long-term trend indicates a 10-year forward real annualized return of only 0.8% (up from the end of December 2021 forecast of 0.2%).

• Reliance on a single market timer is risky. The risk can be reduced by a multi-model market timer whose many components use different and uncorrelated financial and economic data.
• This model seeks to determine reliable risk-on and risk-off periods for the stock market. When there is no definite signal for risk-on or risk-off then the investment is considered risk-neutral.
• From 2000 to 2022, switching between ETFs RSP, VGT, SH, TIP, BIV and IEF would have produced an annualized return of 34.2% versus 7.0% for buy and hold SPY.
• The model is not a binary indicator between risk-on and risk-off and does not rely on leveraged ETFs to produce such high returns.

• The average of S&P 500 for December 2021 was 4675 (previous month 4670). This is 2155 points higher than the long-term trend value of 2520.
• The current percentage difference of S&P 500 level relative to the current long-term trend level is 85%, a value not exceeded in the recent past since 2001.
• The Shiller Cyclically Adjusted Price to Earnings Ratio (CAPE) is at a level of 38.4. That is 51% higher than its 35-year moving average (MA35), currently at 25.4.
• The CAPE-MA35 ratio is 1.51, forecasting a 10-year annualized real return of about 3.8%. Should the CAPE-MA35 ratio increase further, then 10-year forward returns will be even lower.
• The historic long-term trend indicates a 10-year forward real annualized return of only 0.2%, and the current condition of overvaluation suggest zero returns by the end of 2028.

• Goldman Sachs reported that only 25 stocks accounted for 58% of the index’s 2021 gains, including reinvested dividends, through Dec-9-2021.
• One can verify the accuracy of this list by ranking the S&P 500 stocks on the factor “Market Capitalization x 1-year Rate-of-Change”, with higher being better.
• Backtesting to Jan-2000 shows that buying the 25 highest ranked stocks every year at the end of December would have approximately matched the performance of SPY over the backtest period.
• However, investing similarly in the 25 highest ranked stocks of the lower two terciles of the ranked S&P 500 would have provided over 3-times the total return of SPY.
• The list of 25 S&P 500 stocks to hold during 2022 is given in Appendix-2, which is expected to provide higher returns to Dec-2022 than the Goldman Sachs list.
Read more ›

• Consumer Sentiment, when expressed as the difference in return of the Consumer Staples- and the Consumer Discretionary sectors, can provide risk-on and risk-off signals for equity investment.
• Also a reasonably reliable risk indicator is the Cyclically Adjusted Risk Premium (CARP), defined as the inverse of the Shiller CAPE Ratio (CAPE) in percent minus the 10-year note yield.
• The Consumer Sentiment Timer can be improved by including the value of the CARP in its rules to provide more profitable risk-on and risk-off signals for equity investment.
• From 5/1/1999 to 10/15/2021 the Consumer Sentiment & CARP Timer, when accordingly switching between ETFs SPY and IEF, would have produced 18.5% annualized return with a maximum drawdown of -27%.

• The difference in return of the Consumer Staples- and the Consumer Discretionary sectors can provide risk-on and risk-off signals for equity investment.
• Four time series sets are used: ETFs XLP & XLY, Portfolio 123 Specialty SP1500 Consumer Staples & Consumer Discretion, Aggregate Series Non-Cyclical & Cyclicals, and ETFs RHS & RCD.
• Investment in equities is signaled when the 15 week return of the discretionary sector outperformed the staples sector’s return.
• From 5/1/1999 to 10/1/2021 this strategy, when accordingly switching between ETF SPY and ETF IEF, would have produced a 14.9% annualized return with a maximum drawdown of -17%.