Hello everyone,
as title says, today I would like to speak about the S&P500 and its market valuation in the current economic environment.
Since I prefer to study and analyze markets on higher time frames rather than day-to-day, this Case Study is based on quarter outlook (3M chart), to capture most of the available information using metrics that have significant inputs and outputs on the economy e.g. Interest Rates, Employment Rates, company Bankcruptcies & others.
I decided to make this Case Study since I believe we may be on the verge of facing difficulties on micro and macro levels, which in history led into a downturn of equity markets for a prolonged period of time.
It may be argued that some of these Cases are not relevant since they don't include full data, and that would be fair. But at the same time, I would point out that these data and used Cases are the most relevant to this day, because of their similarities to today's economic environment even if not in a full manner.
For better understanding, you need to take a look at Pic1.
(Pic1.:S&P500 chart with color legend)
-Captured time windows consist of the US Unemployment rate moving from relatively low levels to higher values in times when Interest Rates are relatively High. To make a better educated guess I included US bankcrupcies as an overall business health indicator.
-Inflation Rate or Federal Reserve Balance could be used additionally.
Historically, I would argue that the most similar to this day looks Case Nr.4
In both, we have:
a, rallied to ATH in unfavorable market conditions (3to4, 5to6?)
b, unemployment rate curving up from the bottom
c, bankcruptcies curving up from the bottom
d, interest rates are high (and cuts are around horizont)
Why is that important?
Because as Pic2. shows:
(Pic2.:S&P500 drawdown from top)
-In all of these cases market bled and did not start turning around BEFORE FED found the bottom rate.
And they have not even started cutting yet..
That in my view is a huge red flag and it brings attention to "Not IF we are about to go lower, but WHEN we are about to start going lower."
It may be a month, two or three... but if we take a look at what the chart and those economic metrics suggest, it's most likely will not be a pretty ride until all of those are resolved in favorable manner for markets, which may take year or longer as historical cases shown..
Unless they decide to print NEW TRILLION$$$
Hopefully, this case study was helpful for some of you in further market navigation.
If YES, please consider liking or sharing this post, it would mean a lot to me.
Also, if you are interested in more updates or you would like to receive personal analysis with lower time frame updates daily, let me know in the comments or DM.
Best Regards,
Joe
as title says, today I would like to speak about the S&P500 and its market valuation in the current economic environment.
Since I prefer to study and analyze markets on higher time frames rather than day-to-day, this Case Study is based on quarter outlook (3M chart), to capture most of the available information using metrics that have significant inputs and outputs on the economy e.g. Interest Rates, Employment Rates, company Bankcruptcies & others.
I decided to make this Case Study since I believe we may be on the verge of facing difficulties on micro and macro levels, which in history led into a downturn of equity markets for a prolonged period of time.
It may be argued that some of these Cases are not relevant since they don't include full data, and that would be fair. But at the same time, I would point out that these data and used Cases are the most relevant to this day, because of their similarities to today's economic environment even if not in a full manner.
For better understanding, you need to take a look at Pic1.
(Pic1.:S&P500 chart with color legend)
-Inflation Rate or Federal Reserve Balance could be used additionally.
Historically, I would argue that the most similar to this day looks Case Nr.4
In both, we have:
a, rallied to ATH in unfavorable market conditions (3to4, 5to6?)
b, unemployment rate curving up from the bottom
c, bankcruptcies curving up from the bottom
d, interest rates are high (and cuts are around horizont)
Why is that important?
Because as Pic2. shows:
(Pic2.:S&P500 drawdown from top)
And they have not even started cutting yet..
That in my view is a huge red flag and it brings attention to "Not IF we are about to go lower, but WHEN we are about to start going lower."
It may be a month, two or three... but if we take a look at what the chart and those economic metrics suggest, it's most likely will not be a pretty ride until all of those are resolved in favorable manner for markets, which may take year or longer as historical cases shown..
Unless they decide to print NEW TRILLION$$$
Hopefully, this case study was helpful for some of you in further market navigation.
If YES, please consider liking or sharing this post, it would mean a lot to me.
Also, if you are interested in more updates or you would like to receive personal analysis with lower time frame updates daily, let me know in the comments or DM.
Best Regards,
Joe