Thursday , 13 June 2024

Where Are We In the Current Economic/Market Cycle? These Charts Will Help You Decide (+2K Views)

There is a debate on Wall Street between those who believe we have entered into thebullandbear-190x190 next “secular bull market” and those who believe that the current market advance is predicated on artificial stimulus and, as such, the “secular bear market” remains intact. Take a look below at a series of charts designed to allow you to draw your own conclusions and convey your view in the comments section at the very bottom of the page. Words: 719; Charts: 12

So says Lance Roberts ( in edited excerpts from his original article* entitled Lance Roberts: The Market in Pictures.

[The following article is presented by  Lorimer Wilson, editor of and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Roberts goes on to say in further edited excerpts:

…I have only included commentary where necessary in the series of charts below to clarify chart construction or analysis [so as not to unduly influence your assessment of the situation and your ultimate conclusions as to whether the U.S. is in a secular bull or bear market].

Valuation Measures

1. Tobin’s Q-Ratio & Shiller’s PE 10 vs. S&P 500 Analyses

The following chart shows Tobin’s “Q” ratio and Robert Shillers “Cyclically Adjusted P/E (CAPE)” ratio versus the S&P 500.

James Tobin of Yale University, Nobel laureate in economics, hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement value of the firm’s assets.

Dr. Robert Shiller, also a Nobel Prize winning Yale professor, created CAPE to smooth earnings variations and volatility over time. CAPE is calculated by taking the S&P 500 and dividing it by the average of ten years worth of earnings. If the ratio is above the long-term average of around 16x, the stock market is considered expensive. Currently, the CAPE is at 24.42x, and the Q-ratio is at 1.00.


2. Easterling’s Long Term Returns Analysis

Doug Short regularly publishes the work of Ed Easterling who has done extensive studies on valuation and resulting long term returns.


 3. Shiller’s CAPE vs. S&P Analysis

The next two charts are variants on Robert Shiller’s CAPE. The first is just a pure analysis of CAPE as compared to the S&P 500.


4. S&P 500 Cyclically Adjusted P/E & Reversion Analyses

The next chart shows the deviation of valuations from their long term average.


5. Real S&P 500 vs. Real GDP

Are stocks truly reflecting the economy?


 6. Market Cap to GDP Analysis

One of Warren Buffett’s favorite valuation measures is Market Cap to GDP. I have modified this analysis utilizing real, inflation adjusted, S&P 500 market capitalization as compared to real GDP.


7. Margin Debt as a % of GDP

Since the stock market should be a reflection of the underlying economy, then the amount of leverage, or margin debt, in the market as a percentage of GDP could provide an important clue.


Deviation Measures

The following charts are measures of deviation from underlying trends or averages. The greater the deviation from the long term trends or averages; the probability of a reversion back to, or beyond, those trends or averages increases.

1. Deviation of Earnings Above & Below the Long Term Growth Trend

The first chart is the deviation of earnings from the underlying long term growth trend of earnings.


2. S&P 500 vs. 36 mo. Moving Average Deviation 

The next chart is the deviation in price of both the S&P 500 and Wilshire 5000 from the 36-Month moving average…


3. S&P 500 vs. 50 mo. Moving Average Deviation 

The chart below is the same basic analysis but utilizing a 50-week moving average which is a more “real-time” variation.


4. S&P 500 vs. the Volatility Index

The volatility index (VIX) is representative of investors “fear” of a correction in the market. Low levels represent investor complacency and no fear of a market correction.


Just For Good Measure

Below is a chart of the S&P 500 from John Hussman that lists all of the warnings signs of a crash that we are experiencing now.  

“Anatomy of textbook pre-crash bubble. Don’t rely on further blowoff, but don’t be shocked. Risk dominates. Hold tight.”


The above analyses, along with the economic data I posted recently, tells us much about where we are within the current economic and market cycle. While it is certainly easy to be swept up in the daily advances of the stock market casino, it is important to remember that eventually the “house always wins.” …

[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]

* (Copyright © STA Wealth Management)

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One comment

  1. Charts re wonderful but these days I think they illustrate Central Bank and Government manipulation instead of what a normal market activities, therefore they are only useful to see what has happened in comparison to the past, where as in the past they could be used to determine future swings in the market.

    A great example was when the Hunt’s drastically changed the price of the entire Silver market, that is until the market place returned prices back to normal.