7 Charts For Investors Who Are Worried About The Market - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

7 Charts For Investors Who Are Worried About The Market

So far in 2014, the US equity markets haven’t impressed investors. An expanding trading range and increasing volatility in technology names has some TV talking heads calling for the next major bear market. 

Investors who are worried about the market should review the next few charts. The data is still mixed, but the longer term trends are still in place.

First, The Bad News

1) Consumer spending is getting weaker. This is not good for an economy that is based on the spending of consumers. Approximately 68% of our GDP comes from consumer spending (source: The World Bank):

has consumer spending peaked

 

2) Consumers rather save than spend. The latest Gallup poll of Americans preference of “saving” vs. “spending” shows the majority of Americans continue to enjoy saving money more than spending it, by 62% to 34%.

Consumers becoming more frugal will lead to downward pressure on prices and possibly deflation.

spending vs saving

3) Gas prices are rising again and it’s having an impact. Rising prices at the pump are impacting consumer spending and growth:

rising gas prices

source: Zerohedge 

4) Worries about the “Big Taper”.  Stocks and The Fed’s policies have been closely correlated. Will they uncouple? Is the US economy strong enough without the Fed’s foot fully pressed down the on stimulus pedal?. Future moves from the Fed may dictate market direction:

feds impact on the stock marktet

 

5) The use of leverage is excessive. NYSE Margin levels are at historic highs. This may increase market swings in the future as fully leveraged investors try to quickly avoid short term losses (which are magnified with the use of margin):

NYSE-margin-debt-SPX-growth-since-1995

The Good News

6) Fear in the market is still low. VIX, aka the fear indicator, has remained fairly low. The increasing trading range of the market seems to not have impacted investors’ opinion of the market:

vix

7) The S&P 500 is still in its current, upward trend. To me, this is one of the most important charts investors should be looking at. Despite possible early warning signs from the economy, the market is still bullish. A break of this multiyear trend will be an indication that investors have drastically changed their views on the market:

SPX trend

 

What My Models Are Saying:

In today’s market update video, I am reviewing how my models are interpreting the current data and trends in the market.

If you have any questions or comments, please feel welcome to reach out. You can leave general comments in the comments section below, or reach out with more confidential questions via the contact page here.

Thanks!

John Rothe

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