Blog Archives

A September Unemployment Rate of 4.0% Will Signal a Recession

  • 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.

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Stocks Are Moderately Overvalued And 10-Year Forward Returns Look Reasonably Good: Update July 2023

  • 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%

Posted in 2020, blogs, featured

iM’s Business Cycle Index Recovers but still Signals a Recession – Update 6/9/2023

  • 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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Timing The Stock Market With The Conference Board Leading Economic Index

  • 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.

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Stocks Are Moderately Overvalued but 10-Year Forward Returns Look Good: Update April 2023

  • 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.

Posted in 2020, blogs, featured

iM’s Business Cycle Index Signals an Imminent Recession – Update 4/7/2023

  • 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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Expect Further Losses For Stocks but 10-Year Forward Returns Look Better: Update December2022

  • 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.

Posted in 2020, blogs, featured

An Upcoming Recession is Signaled by the Forward Rate Ratio

  • 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.

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Expect Further Losses For Stocks And Very Low 10-Year Forward Returns: Update July 2022

  • 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%).

Posted in 2020, blogs, featured

The iM-Inflation Attuned Multi-Model Market Timer

  • 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.

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