This week’s data have further confirmed the growing risks to the global economy, and the 10 year long bull market in equities. On Tuesday the ISM Manufacturing PMI report fell again and missed estimates, reaching it’s lowest level in a decade with a second consecutive reading below 50. Compounding the worries for the other disappointing data reflected in our Business Cycle Checklist recently, the probability of an imminent recession and coincident bear market in risk assets is becoming ever more likely, as we discussed in this week’s Trading Club video analysis.
There is a saying that “bad luck comes in threes”, and what I am about to show you supports that. Here you can see the Business Cycle Checklist which turned negative this month for the first time in 13 years, signalling an end to the economic expansion.
Elsewhere in our latest Monthly Checklist Report for October, our Market Risk Checklist was also pointing down, agreeing that investors should brace for weakness in risk markets.
To help visualise this, here’s the ratio of the Industrials to Consumer Staples sector ETFs which shows the ‘riskier’ cyclical stocks underperforming the ’safer’ defensive names.
It’s rare for everything to be perfectly aligned when dealing in markets. But with the Business Cycle and Market Risk Checklists both negative, and US Equities Checklist (below) at -2, we have the 'holy trinity’ of market forces confirming one another, putting downwards pressure on equities.
As you can see, this is already playing out in the S&P 500 with the futures down -3.5% since we updated our Monthly Checklist Report on 25th September...
Whether you are superstitious about old sayings or not, there is no denying the price action that is playing out on the basis of the facts presented by our Checklist process.
Time will tell how this all plays out, but what’s clear is that things are becoming far more complicated in markets and it has never been more important to trade with a proven process. We provide our Checklists for a range of markets at the Trading Club and update them for our members on a monthly basis with video updates each week tracking the evolution in markets.
If you would like to join us for our full analysis including new insights each week, or learn from the ground up with online tuition from Lex in our MDT online course, then reach out to us now and take your financial knowledge to the next level right away!
Have a great weekend,
James Helliwell | Chief Investment Strategist