Transcript:
Tom Vaughan:
All right, I always like to start off the show with a little bit of a summary of what I saw happening in the market this week. And really, this is a very good week altogether from what we’ve seen last week. We had the big drop that happened from the inflation number coming out. And we basically have recovered, you know that. We had an all time record close yesterday for the S&P 500, and the NASDAQ, for example. So things are going really well. There are some specific things that are probably worth noting. But I want to really talk about one reported a number that came out this week.
There’s a thing called the leading economic indicator and it’s one of my favorite indicators to watch for economic growth, or lack thereof. And I think if I had to follow one indicator, this would be it. So let me share my screen and I’ll show you kind of a chart of what it looks like. And I can explain what it is. And this, I think this might help you know, you to understand what’s going on and such too. I do try to point out some of the things that are going well, to compensate for some of the things that we keep seeing in the news, that are negative. Somebody’s saying that the market’s going to crash and all these different things that happen. And the reason they do that is because they get more clicks on their articles and such. And obviously, they’re making more money off of that. So the positive side sometimes get ignored. But I think this understanding this index, understanding what’s happening with this index right now might help kind of balance out your thought process for investing.
So this is called LEI, Leading Economic Indicator put together by the Conference Board. And this blue line, right is the is the actual indicator, this goes all the way back to 1960. These gray bars in here are different recessions that happened. And let me describe the indicator is actually a basket of 10 other indicators. So there’s 10 of them all together, a group of them revolve around manufacturing. So for example, how many hours were worked during manufacturing over that last month. How many capital goods orders came in consumer orders, the volume of orders, etc. And then there’s a grouping around the consumer, for the consumer health that got consumer survey, building permits, for example, and those types of things. And then they look at the financial health of the markets as a whole. And the S&P 500 is one of the 10 indicators in here, which I really like, as well as money supply. And then the difference between Long and short term interest rates, which is an economic indicator. So this is, in my opinion, a quite accurate indicator. And here’s how I look at this.
If you look, every time you see one of these gray bars, you’re generally seeing the indicator start down first. That’s why it’s called a leading indicator. And so if you look here, it starts down, then we got a recession, starts down, recession, starts down. Okay. So what we want to note here for starters, is that it’s not even close to starting down. Matter of fact, in October, it actually went up .9%, which is a fairly big number for this particular indicator. And what that says is that the indicator is saying that the economy is expanding right now as we speak, and that the economy will most likely continue to expand, through the end of the year and the first part of next year. And then we’ll see this comes out every month, and we get to watch this.
So one of the things I look at is, is that if this indicator is not going down, or even sideways, the chances of a big stock market crash are very small, at least historically. So if you look here, this big recession here, you had the topping of this indicator way before that this was the 2008 downturn. And again, here’s the 2000 downturn it topped before. So it gives us some early warning, if something’s going to happen. We go back to the other large downturn, which was here in 1973. Again, it peaked first, before we had this big downturn. So this was 46% down. 2000 was 49% down. 2008 was 57% down. So this is all for the S&P 500 as far as the returns go.
So here’s my thing, when you see an article that says the market’s going to crash, we’re going to have the worst crash ever all these things that we keep seeing all the time, think about this chart, because what this chart saying is through from 1960 to now, we’ve not had one single time where this indicator was going straight up. And we ended up with a big market crash or even a recession. And so anything can happen. Things can be different, you know those types of things. But altogether, I think it’s important to understand how something like this works. And I’ll keep you up to breast on this as far as that goes. And I’ll even let you know if it starts to top so we can start to figure out what that means and what we might do for that.
And then the other chart I’ll show you just real quickly. This is the S&P 500. Each one of these little boxes here is a day. This orange line here is the 50 day moving average. We got the 200 day moving average. So first of all, when you look at this over the last year, that’s a pretty good slope. I mean, this is pretty strong. We had this one time period here where it fell below the 50 day moving average, and that was during the period of time where they were worried about the debt ceiling. We actually got defensive in that timeframe, and then got back in at a lower point for most of what we dealt with, in order to make sure we were okay on the debt ceiling.
The debt ceiling is still an issue, or something that, you know, we’re going to be dealing with here possibly, again, although I think it was probably going to be resolved. But we have enough money to last till December 15, which isn’t that far off. But if they get the Build Better Back program passed, they passed the House today, it goes to the Senate, you know, they’ll probably change it. And then if they do, they have to vote on it, if it gets passed, that they’ll come back to the house, and probably do pretty quick vote in the House when and it’ll go through. And in that bill, we have the debt ceiling increase in there too, that should get us to December of 2022. So anyway, I think that those things are kind of being factored in right now.
But this is a very strong market. We’re seeing motion in certain segments. So software, for example, doing quite well, a company like Microsoft, for example, they don’t have a supply chain issue, because their deliver their product, without having to assemble something like you know, like Apple does, we’re starting to see, you know, fantastic movement out of that group as far as that goes. We’re also seeing good movement at the semiconductor group as a whole, because of the fact that that’s one of the areas where we have the biggest supply chain constraints. And they’re working pretty much around the clock to solve those constraints and that means profits. A lot of these companies have, you know, orders booked out in some of their chips all the way through next year, so that gives them pricing power. So they don’t have to worry about inflation too much in that regard, and it also gives them really good revenue stream as far as that goes.
So, altogether, this has been a fantastic market, it’s a really good time to be an investor. You know, we’re seeing some things happen here that I think are just accelerating as far as that goes. I don’t see that acceleration stopping that leading indicator line. If you look closely, it’s accelerating upward. That’s a very strong line. Even if the Federal Reserve starts to pull back and those types of things, I think we still see some pretty good motion for quite a while there in terms of economic growth. So that’s what I see this week. Altogether, great week and so hopefully we can see what happens you know, next week is going to be a shorter week. Got the you know, Thursday’s off and Fridays only half day, but nonetheless, we’ll we’ll see what happens there.