U.S. Equity Market Chart Book

U.S. Equity Market January 2019 Chart Book

As part of Merk’s in-house research we regularly evaluate a consistent set of charts covering the economy, equities, fixed income, commodities and currencies. The aim is to keep our eyes open and to look through the noise of the headlines, avoiding the distractions of sensationalized click-bait. In sharing this content, we offer a cross-check to your own thinking and aim to add value to your own process.

Q3 hedge fund letters, conference, scoops etc

Today’s topic: the U.S. Equity Market

“The market has recently rebounded substantially… [of] the main items that seem to be continuing to cause volatility, the the most important [may be] China…We invite you to download a copy of the chart book (PDF).


U.S. Equity Market Chart Book

S&P 500 Valuation Indicator

Aggregate Equity Allocation Proxy (From Fed Z.1 Report) and S&P 500 Subsequent 10 year annualized Returns

U.S. Equity Market Chart Book

Analysis: If history is any guide, this chart suggests annualized S&P 500 returns (w/o dividends) might be close to 0% over the coming 10 year period. The grey dotted line is the market value of US equity divided by the total market value of US equity and debt, which is used as a proxy for aggregate equity allocation.

The data comes from the quarterly Federal Reserve Z.1 report, the series will be updated next in late March. At 45.5% the equity allocation is relatively high currently. Chart Framework: I’d likely get positive on the longer term outlook for the S&P at an allocation below 30%, which would likely only be after a substantial bear market in the S&P 500.

Earnings Backdrop

S&P 500 Trailing 12-month Earnings per Share and the S&P 500

U.S. Equity Market Chart Book

Analysis: S&P 500 trailing earnings continue to look consistent with an ongoing bull market. According to Factset: analysts are projecting earnings growth of 7% for calendar year 2019, a slightly lower growth forecast relative to last month’s report. Chart Framework: I’d get incrementally negative if the trailing 12- month earnings move sideways/down over consecutive quarters (QoQ). It’s worth noting that this framework may be more of a coincident or confirmatory rather than a leading indicator with respect to a major market top.

Business Cycle Backdrop

Leading Economic Indicators (LEI) Index and the S&P 500

U.S. Equity Market Chart Book

Analysis: The LEI Index is just below its highs for the cycle. Chart Framework: I’d get incrementally negative on the outlook for the S&P if the LEI Index began trending sideways to down while the S&P was at or near bull market highs.

Global Growth Backdrop

Large Economy Manufacturing PMIs (Purchasing Managers Index) and the S&P 500

U.S. Equity Market Chart Book

Analysis: The China PMI is now below the 50 level, which divides expansion from contraction. I’m currently neutral/negative on this picture given my framework. Chart Framework: I’d get incrementally negative on the S&P outlook if any of these PMIs fell below 50. Would get positive if all readings are above 50.

U.S. Financial Conditions

Chicago Fed National Financial Conditions Index and the S&P 500

U.S. Equity Market Chart Book

Analysis: Financial conditions have tightened slightly since last month’s report, from -0.76 to -0.71, as of the week ending 1/4/2019. Financial conditions are generally still at an accommodative level. Loose financial conditions are generally a positive for the stock market. Chart Framework: I’d get incrementally negative on the outlook for the S&P if financial conditions moved through the -0.50 level.

See the full slides below.


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Publication Date Chart Book Category PDF Video Additional
January 16, 2019 U.S. Equity Market
January 9, 2019 U.S. Business Cycle
December 20, 2018 U.S. Equity Market
December 19, 2018 Fed Chart Book
December 12, 2018 Business Cycle
November 14, 2018 U.S. Equity Market
November 08, 2018 Fed Chart Book
November 07, 2018 Business Cycle
October 17, 2018 U.S. Equity Market
October 10, 2018 Business Cycle
September 26, 2018 Fed Chart Book
September 19, 2018 U.S. Equity Market
September 12, 2018 Business Cycle
August 29, 2018 U.S. Interest Rates
August 22, 2018 U.S. Inflation
August 15, 2018 U.S. Equity Market
August 08, 2018 Business Cycle
August 1, 2018 Fed Chart Book
July 18, 2018 U.S. Equity Market
July 12, 2018 Business Cycle
June 14, 2018 U.S. Equity Market
June 13, 2018 Fed Chart Book
June 6, 2018 Business Cycle
May 23, 2018 U.S. Inflation
May 16, 2018 U.S. Equity Market
May 9, 2018 Business Cycle
May 2, 2018 Fed Chart Book
April 19, 2018 U.S. Equity Market
April 10, 2018 Business Cycle
March 21, 2018 U.S. Equity Market
March 14, 2018 Business Cycle
February 14, 2018 U.S. Equity Market
February 7, 2018 Business Cycle
January 17, 2018 U.S. Equity Market
January 10, 2018 Business Cycle
December 12, 2017 Business Cycle

Article by Merk Investments


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