Credit: Shutterstock photoVectorVest's 'truth chart' provides an objective way to analyze the macroeconomic state of the market. Basically, the Truth Chart unemotionally answers the question are we in a bear market? Or a bull market?
In bull markets, the majority of stocks rise and investors can hold long-term positions with higher probability of gains. A bear market is just the opposite – owning stocks comes at much higher risk and investors should take defensive actions to protect their portfolio from catastrophic losses like those seen in '08.
To determine the market's state, VectorVest believes the answer lies in tracking the trends of the three forces that hold ultimate influence over the market's price direction – earnings, interest rates and inflation. Based on the favorable or unfavorable condition combination of these indicators the market will be in one of four possible bull or bear market scenarios as shown below (please note, these stages do not need to occur in the market in consecutive order).
Each week, VectorVest shows the current level of the significant market indicators that are used to gauge earnings, interest rates and inflation, as well as whether the trends of those indicators are favorable or unfavorable based on a scale of 0.00 to 2.00. Values above 1.00 are favorable, values below 1.00 are unfavorable. A composite of the trends is calculated and updated each week and a five week history is included for reference (below).
VectorVest Economic Summary:
Our Composite of Investment Climate Indicators (shown above) rose 0.02 points to a level of 0.93. The major mover last week was the 90 Day T-Bills, whose indicator rose 0.23 points. Our forecast of S&P 500 Earnings remained unchanged at $4.39. Its indicator also remained unchanged at a level of 1.12. According to VectorVest, we currently have a Case 3, Bull market scenario in which earnings and interest rates are rising, while inflation is falling.
Reports and Announcements for the week ending 1/10/14:
- The Trade Deficit narrowed from $39.33 billion to $34.25 billion in November 2013, marking the lowest level seen since October 2009. Factory Orders advanced 1.8% in November 2013, compared to last month's 0.9% slide.
- Wholesale Inventories grew by 0.5% in November 2013, following a 1.3% increase in the previous month.
- The Market Services PMI fell slightly by 0.2 points to a level of 55.7 in December 2013.
- The ISM Non-Manufacturing PMI fell 0.9 points to a level of 53.0 in December 2013, falling short of expectations at 54.6.
- Total Consumer Credit rose 4.8% on an annualized basis in November 2013, with Revolving Credit rising 0.6% and Non-Revolving Credit rising 6.4%.
- The IBD/TIPP Economic Optimism Index gained 2.1 points to a level of 45.2 in January, modestly lower than the expected rise to 45.3. Nonfarm Payrolls grew by only 74,000 in December 2013, considerably lower than the forecasted 196,000.
- The Unemployment Rate fell to 6.7% in December 2013, compared to the previous month's reading of 7.0%. ADP reported that the Private Sector added 238,000 jobs in December 2013, the largest gain seen since November 2012. U.S.
- Jobless Claims decreased by 15,000 in the week ending January 4th to 330,000. Crude Inventories decreased by 2.7 million barrels last week, while oil prices dropped to $93.66.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
