The economy is showing signs of weakness and I believe there’s a good chance the U.S. is currently in the middle of a recession. If not, it will probably be in one by the end of this year.
Here are some data I’m keeping track of to make my financial decisions ahead. 🙂
Unemployment rate: 3.6%
The labor market is very tight right now. Companies are finding it difficult to attract workers. When this rate drops too low a recession typically ensues. The thing I’m watching for is the reversal. If the next reading comes in above 4.0%, then there could be trouble on the way.
5-Year breakeven inflation rate: 3.03%
This graph shows the market’s future inflation expectations. It usually drops a lot during recessions. This could be a problem if it’s too high because it means the Federal Reserve may need to tighten monetary policy more aggressively which would add selling pressure on the stock market.
CBOE equity put/call ratio: 0.66
This graph shows how bullish or bearish the stock market is. I’m looking for a spike in this ratio, usually above 0.85, which as historically corresponded with maximum capitulation in the stock market, and likely to indicate the end of a bear market.
S&P 500 p/e ratio: 19
The price to earnings ratio of the S&P 500 index is now below its 10 year average. It’s currently still dropping. But a meaningful reversal could mean the start of a new bull market cycle. So I am keeping an eye on this ratio.
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Random Useless Fact:
People generally live easier lives today, but complain more.
Great indicators! You’re a smart dude, I don’t delve this much into reading charts. I probably should learn and then I’d be a much better stock investor.
I figured reading charts worked out last for me during the market correction of 2020 so I will continue to use what works. 🙂
Really good charts to watch.
Something to note in the tech sector – since it started to drop in November 2021 is we’ve yet to see multiple capitulation days of over 5% daily decline in the Nasdaq. Its been a steady slow downtrend. But I think we may still see those capitulation days to ‘shake out’ those still with high valuations.
I remember being invested through the dotcom crash and seeing this happen. I learned through that period as long as you hold the profitable market leaders they will recover in time – you just have to be really patient. Most unprofitable (yet with sales growth) companies got hammered.
AMZN took 10 years to get back to its peak of the dotcom crash; MSFT over 15 years. I think the main difference now is that companies like this are so ingrained in our daily lives now, whereas back in 2000 they were still very early in their market share, innovation and growth cycle.
Thanks for sharing your experience. I didn’t have any money in the markets in the early 2000s so I wasn’t aware.
A 5% daily decline sounds scary. If that happens I bet a lot of people are going to get margin called. 😐
I’m curious if you also have indicators for Canada
Unfortunately I don’t. I typically use the US data to make decisions for my Canadian market decisions as our economy and monetary policy typically follows the US anyway. 🙂 Although there are some clear differences between the 2 countries.
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