Friday, February 23, 2024

The U.S. Economic Situation – February 23, 2024 Update

Perhaps the main reason that I write of our economic situation is that I continue to believe, based upon various analyses, that our economic situation is in many ways misunderstood.  While no one likes to contemplate a future rife with economic adversity, current and future economic problems must be properly recognized and rectified if high-quality, sustainable long-term economic vitality is to be realized.

There are an array of indications and other “warning signs” – many readily apparent – that current economic activity and financial market performance is accompanied by exceedingly perilous dynamics.
I have written extensively about this peril, including in the following:
Building Financial Danger” (ongoing updates)
My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

For long-term reference purposes, here is a chart of the Dow Jones Industrial Average since 1900, depicted on a monthly basis using a LOG scale (updated through February 21, 2024 with a last value of 38,612.24):

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

DJIA since 1900

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5094.75 as this post is written

Thursday, February 22, 2024

Updates Of Economic Indicators February 2024

The following is an update of various indicators that are supposed to predict and/or depict economic activity. These indicators have been discussed in previous blog posts:

The February 2024 Chicago Fed National Activity Index (CFNAI) updated as of February 22, 2024:

The CFNAI, with a current reading of -.30:

CFNAI

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index [CFNAI], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed February 22, 2024: 
https://fred.stlouisfed.org/series/CFNAI

The CFNAI-MA3, with a current reading of -.02:

CFNAIMA3

source:  Federal Reserve Bank of Chicago, Chicago Fed National Activity Index: Three Month Moving Average [CFNAIMA3], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed February 22, 2024: 
https://fred.stlouisfed.org/series/CFNAIMA3

The Aruoba-Diebold-Scotti Business Conditions (ADS) Index

The ADS Index as of February 22, 2024, reflecting data from March 1, 1960 through February 17, 2024, with last value .036461:

ADS Index

The Conference Board Leading Economic Index (LEI), Coincident Economic Index (CEI), and Lagging Economic Index (LAG):

As per the February 20, 2024 Conference Board press release the LEI was 102.7 in January, the CEI was 112.1 in January, and the LAG was 118.6 in January.

An excerpt from the release:

“The U.S. LEI fell further in January, as weekly hours worked in manufacturing continued to decline and the yield spread remained negative,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “While the declining LEI continues to signal headwinds to economic activity, for the first time in the past two years, six out of its ten components were positive contributors over the past six-month period (ending in January 2024). As a result, the leading index currently does not signal recession ahead. While no longer forecasting a recession in 2024, we do expect real GDP growth to slow to near zero percent over Q2 and Q3.”

Here is a chart of the LEI from the Advisor Perspectives’ Conference Board Leading Economic Index (LEI) update of February 20, 2024:

Conference Board LEI 102.7

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I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 5087.03 as this post is written

Chicago Fed National Financial Conditions Index (NFCI)

The St. Louis Fed’s Financial Stress Index (STLFSI4) is one index that is supposed to measure stress in the financial system. Its reading as of the February 22, 2024 update (reflecting data through February 16, 2024) is -.8423:

STLFSI4

source: Federal Reserve Bank of St. Louis, St. Louis Fed Financial Stress Index [STLFSI4], retrieved from FRED, Federal Reserve Bank of St. Louis; accessed February 22, 2024: https://fred.stlouisfed.org/series/STLFSI4

Of course, there are a variety of other measures and indices that are supposed to measure financial stress and other related issues, both from the Federal Reserve as well as from private sources.

Two other indices that I regularly monitor include the Chicago Fed National Financial Conditions Index (NFCI) as well as the Chicago Fed Adjusted National Financial Conditions Index (ANFCI).

Here are summary descriptions of each, as seen in FRED:

The National Financial Conditions Index (NFCI) measures risk, liquidity and leverage in money markets and debt and equity markets as well as in the traditional and “shadow” banking systems. Positive values of the NFCI indicate financial conditions that are tighter than average, while negative values indicate financial conditions that are looser than average.

The adjusted NFCI (ANFCI). This index isolates a component of financial conditions uncorrelated with economic conditions to provide an update on how financial conditions compare with current economic conditions.

For further information, please visit the Federal Reserve Bank of Chicago’s web site:

http://www.chicagofed.org/webpages/publications/nfci/index.cfm

Below are the most recently updated charts of the NFCI and ANFCI, respectively.

The NFCI chart below was last updated on February 22, 2024 incorporating data from January 8, 1971 through February 16, 2024 on a weekly basis.  The February 16 value is -.52151:

NFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 22, 2024:  
http://research.stlouisfed.org/fred2/series/NFCI

The ANFCI chart below was last updated on February 22, 2024 incorporating data from January 8, 1971 through February 16, 2024, on a weekly basis.  The February 16, 2024 value is -.50523:

ANFCI

Data Source: FRED, Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; accessed February 22, 2024:  
http://research.stlouisfed.org/fred2/series/ANFCI

_________

I post various indicators and indices because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not necessarily agree with what they depict or imply.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 5062.64 as this post is written

Tuesday, February 20, 2024

The Stock Market Bubble – February 2024 Update

This post is a brief update to various past commentaries concerning the stock market bubble, most notably the February 2020 page titled “The Immense Stock Market Bubble And Characteristics.”

The stock market bubble continues to grow in size, which is highly notable given the enormous size of the bubble during February 2020. My analyses indicate that this stock market bubble is the largest stock market bubble ever in the United States. As well, another problematic aspect is that the stock market bubble is just one of many exceedingly large asset bubbles in existence. The existence of these astoundingly large asset bubbles poses a grave risk to the financial system and economy.

I have written extensively concerning the stock market bubble, its causes, and current and future consequences. It should be noted that a fully comprehensive discussion would be exceedingly lengthy and at times very complex. Perhaps the paramount aspects of this stock market bubble is that, for various reasons, it is far larger than most conventional measures would suggest; and that the future consequences of the “bursting” of the bubble will be highly problematical on many fronts.

As stated in the February 2020 commentary, one of the foremost signs of asset bubbles is excessive sentiment. Excessive sentiment can manifest in many ways. The current stock market environment exhibits a broad array of excessively positive sentiment. This excessively positive sentiment is often referred to as excessive speculation or “froth.” The current stock market is experiencing an epochal speculative mania.

In the February 2020 commentary I displayed a variety of long-term charts that depicted notable fundamental and technical measures. Below is an update to three of those charts, the S&P500, the XLK ETF, and the Nasdaq 100. The XLK and Nasdaq 100 illustrate the outsized price appreciation of perhaps the most overvalued market segment, technology.

Shown below is the S&P500 daily chart since 1990, with prices displayed on a linear scale on the top plot and a LOG scale on the bottom plot:

(click on charts to enlarge images)(charts courtesy of StockCharts.com; chart creation and annotation by the author)

S&P500 since 1990

Here is the XLK (technology) ETF since the year 2000, shown on a linear price scale (top plot) and a LOG scale (bottom plot):

(click on chart to enlarge image)(charts courtesy of StockCharts.com; chart creation and annotation by the author)

XLK since 2000

From a technical analysis perspective, many indicators show highly unique readings. Among these are the Bollinger Bands seen in the Nasdaq 100 chart, demonstrating the outsized velocity of recent price increases. As seen in the monthly chart below, the price has strongly rebounded since mid-2022 and is once again at the upper Bollinger Band:

(click on chart to enlarge image)(charts courtesy of StockCharts.com; chart creation and annotation by the author)

Nasdaq 100

Another indication of a highly elevated level of froth is the extreme excessive valuations and accompanying very rapid price advance of scores of individual stocks both in technology as well as other sectors.

As I have mentioned in previous commentaries, the “bursting” of this stock market bubble will have many adverse impacts. My analyses continue to indicate this popping of the bubble will occur during a crash.

As I have previously written, most recently in “The U.S. Economic Situation” updates:

My analyses continues to indicate that the growing level of financial danger will lead to the next stock market crash that will also involve (as seen in 2008) various other markets as well.  Key attributes of this next crash is its outsized magnitude (when viewed from an ultra-long term historical perspective) and the resulting economic impact.  This next financial crash is of tremendous concern, as my analyses indicate it will lead to a Super Depression – i.e. an economy characterized by deeply embedded, highly complex, and difficult-to-solve problems.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 5005.57 as this post is written

Thursday, February 15, 2024

Trends Of S&P500 Earnings Forecasts

S&P500 earnings trends and estimates are a notably important topic, for a variety of reasons, at this point in time.

FactSet publishes a report titled “Earnings Insight” that contains a variety of information including the trends and expectations of S&P500 earnings.

For reference purposes, here are two charts as seen in the “Earnings Insight” report of February 9, 2024:

from page 32:

(click on charts to enlarge images)

S&P500 EPS forecasts

from page 33:

S&P500 EPS 2014-2025

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 5011.40 as this post is written

Wednesday, February 14, 2024

S&P500 EPS Forecasts For 2023-2025 As Of February 9, 2024

As many are aware, Refinitiv publishes earnings estimates for the S&P500.  (My other posts concerning S&P earnings estimates can be found under the S&P500 Earnings label)

The following estimates are from Exhibit 24 of the “S&P500 Earnings Scorecard” (pdf) of February 9, 2024, and represent an aggregation of individual S&P500 component “bottom up” analyst forecasts.  For reference, the Year 2014 value is $118.78/share; the Year 2015 value is $117.46/share; the Year 2016 value is $118.10/share; the Year 2017 value is $132.00/share; the Year 2018 value is $161.93/share; the Year 2019 value is $162.93/share; the Year 2020 value is $139.72/share; the year 2021 value is $208.12/share; and the year 2022 value is $218.09/share:

Year 2023 estimate:

$224.55/share

Year 2024 estimate:

$243.12/share

Year 2025 estimate:

$274.92/share

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I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4987.15 as this post is written

Standard & Poor’s S&P500 EPS Estimates 2023 – 2024 – February 7, 2024

As many are aware, Standard & Poor’s publishes earnings estimates for the S&P500.  (My posts concerning their estimates can be found under the S&P500 Earnings label)

For reference purposes, the most current estimates are reflected below, and are as of February 7, 2024:

Year 2023 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $211.61/share

-From a “bottom up” perspective, “as reported” earnings of $190.65/share

Year 2024 estimates add to the following:

-From a “bottom up” perspective, operating earnings of $240.40/share

-From a “bottom up” perspective, “as reported” earnings of $217.83/share

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 4980.64 as this post is written

Friday, February 9, 2024

Philadelphia Fed – 1st Quarter 2024 Survey Of Professional Forecasters

The Philadelphia Fed 1st Quarter 2024 Survey of Professional Forecasters was released on February 9, 2024.  This survey is somewhat unique in various regards, such as it incorporates a longer time frame for various measures.

The survey shows, among many measures, the following median expectations:

Real GDP: (annual average level)

full-year 2024:  2.4%

full-year 2025:  1.8%

full-year 2026:  2.2%

full-year 2027:  1.7%

Unemployment Rate: (annual average level)

for 2024: 3.9%

for 2025: 4.1%

for 2026: 4.1%

for 2027: 4.0%

Regarding the risk of a negative quarter in real GDP in any of the next few quarters, mean estimates are 17.3%, 23.9%, 25.6%, 25.6%, and 25.2% for each of the quarters from Q1 2024 through Q1 2025, respectively.

As well, there are also a variety of time frames shown (present quarter through the year 2033) with the median expected inflation (annualized) of each.  Inflation is measured in Headline and Core CPI and Headline and Core PCE.  Over all time frames expectations are shown to be in the 1.9% to 3.1% range.

_____

I post various economic forecasts because I believe they should be carefully monitored.  However, as those familiar with this site are aware, I do not agree with many of the consensus estimates and much of the commentary in these forecast surveys.

_____

The Special Note summarizes my overall thoughts about our economic situation

SPX at 5013.01 as this post is written