There’s no real reason to suspect from a fundamental standpoint that the bull market in the stock market has ended. Indeed, the balance of the data suggests we aren’t likely to see a recession in the U.S. until late 2018 at the earliest.
This article is an edited ([ ]) and revised (…) version of the original (written by Financial Sense) to ensure a faster & easier read. It may be re-posted as long as it includes a hyperlink back to this revised version to avoid copyright infringement.
Urban Carmel (one of the lead writers at The Fat Pitch and, according to Business Insider, one of the most important people to follow in finance) had this to say in an article entitled “No Reason to Suspect Bull Market Has Ended”:
The reality is that bull markets end when economic expansions end and the balance of the evidence suggests that the economy continues to expand…on something of the order of 2-3% real per annum and that’s true regardless of what data you are looking at so…the fundamental view looks pretty good and there’s no real reason to suspect from a fundamental standpoint that the bull market has ended.
Speaking on Financial Sense’s podcast last week, Carmel also said that the balance of the data suggests we aren’t likely to see a recession in the U.S. until late 2018 at the earliest. He gave a variety of reasons and data points for why he thought that was the case but let’s take a look at just one—the Conference Board’s Leading Economic Index (CBLEI), a composite of 10 different leading indicators—to see whether it lines up with what Carmel said on our show.
Currently, the CBLEI is growing at 3.9% year-over-year and has reliably forecasted every recession since 1965 by dipping into the red zone, i.e. contracting, 6.5 months on average beforehand. That said, we aren’t in the red zone. Most of the leading economic data the CBLEI tracks is still well into positive territory, which is why it’s positive.
Just for the sake of the argument, however, let’s assume that the CBLEI has peaked at 3.9% and it’s all downhill from here. How long before a recession in that case, which is when most bear markets tend to occur?
Looking at the chart above, the soonest we could expect a US recession from current levels is 4 months, the longest is 26 months and the average is around 13 months, or just over a year. That aligns with Carmel’s outlook and a number of other strategists on our program.
All we have been hearing since 2011 is how the stock market is going to crash but these charts illustrate that the retail market is not in crash mode just yet and it is still nowhere near the overbought levels of 2007.
The charts in this post focus on the absence of evidence of a looming credit crisis.
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