This is one of the most reliable market predictors……..if it holds, we aren’t even close to the end of the rising market…
The Chemical Activity Barometer(CAB) was revised higher with this mornings report. The correlation with the S&P 500 is shown. Late last week the Advance Real Retail&Food Service Sales were reported with a surprise burst higher. These are only two of a series of economic indicators reflecting economic expansion potential for the next 2yr-3yr.
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In general, news headlines have turned more positive. The tax cut and the sharp cut in government regulatory activity add to investor confidence that economic activity and associated earnings per share are likely to result in higher equity prices. The Wells Fargo Housing Market Index reported at 74 was startling positive for investors who track this index.
Equity prices have risen in spite of many contrary calls for an economic correction which has not been supported by economic indicators. I recommend investors continue to follow the primary economic indicators highlighted in my notes. Equity markets climb higher on every positive surprise. Investors have a long history of responding to positive news by pushing equities higher. This will continue well into historically over-valued territory till these primary indicators register the economy has begun to correct. Investors have always had 6mos-18mos warning which was enough time to prudently side-step major corrections.
Currently, investors are advised to commit additional capital to equities with a 2yr-3yr time perspective which may stretch to 5yrs depending on economic conditions. One cannot identify market tops/bottoms 3yrs ahead of time because so much depends on global policy change at the time. But, history shows that primary indicators have been decent at providing at least 6mos heads-up for tops and bottoms which is sufficient.