We are resetting our yield curve indicator back to green as 3rd quarter GDP growth signals that we are likely out of recession and entering the economic recovery phase of the business cycle (even though National Bureau of Economic Research, NBER, has not officially announced the end date of the recession). The yield curve signal is used as a warning sign of recession and flashes red when the 10YR-3mth spread is below zero (longer-term rates drop below short-term rates). Currently the yield spread is at .80%, as of Nov. 3rd (YCHARTS).
We are upgrading our Market Breadth indicator back to green as market breadth has improved since our last downgrade in September.
September has historically been the worst month of the year for stocks (LPL Financial), and this year was no different as the S&P 500 closed the month down almost 4%. (YCharts) Despite recent weakness the stock market has shown amazing resilience as the S&P 500 is about 4% higher year-to-date, rallying 50% from the lows in March. (YCharts)
COVID-19 has undoubtedly been the biggest factor impacting the economy and stock market this year, and will likely continue to be the most important item to watch as we enter the fourth quarter and move into 2021. Amidst the backdrop of a global pandemic the economy has steadily improved over the last few months. The improvement in economic data, combined with the latest market pull-back, has led us to increase our stock market exposure.
We recently downgraded our Market Breadth indicator to Yellow. While the S&P 500 reached all-time highs in recent weeks, there has been less participation from stocks in the most recent move higher, signaling near-term caution.
With the presidential election less than 3 months away, we know the election is on your mind; it’s on ours too. Here, we will share with you our thoughts on the election’s potential impact on the economy and the stock market.
We upgraded our Business Confidence Indicator to green.
Stocks continued their move higher last month as the S&P 500 rallied over 5% in July. (YCharts) This brings the S&P 500 to breakeven for the year, something that many investors would have had a hard time imagining during the market lows in March. While the rally in stocks is much welcomed there is concern that the market’s recovery does not accurately reflect the damage done in the economy. We agree. While the market is generally considered a leading indicator, we don’t believe the dramatic move higher is an “all-clear” signal for stocks (or the economy).
We recently updated our economic dashboard by upgrading our Market Technicals indicator to green. The sustained move higher in stocks since the lows in March has shifted the underlying trend back to positive leading to this change.
June has come to a close and with that we leave behind a very eventful 1st half of 2020. Most of us probably wish we could fast forward into 2021 as the pandemic has been felt by all in one way or another.
We upgraded our business confidence indicator to yellow.