Wednesday, June 11, 2014

S&P 500 Is Fundamentally Sound (excerpt)

Since 2000, the S&P 500 has been highly correlated with our Fundamental Stock Market Indicator. Our FSMI is the average of Bloomberg’s Consumer Comfort Index and our Boom-Bust Barometer, which is the CRB raw industrials spot price index divided by initial unemployment claims, on a four-week moving average basis. It isn’t a leading indicator of the S&P 500. Rather, it’s meant to show whether the underlying economic fundamentals are consistent with the level and direction of stock prices. The FSMI rose to a record high at the end of May.

By the way, our FSMI is highly correlated with the ECRI Weekly Leading Index. The difference is that our indicator is open-source and consists of just three nonfinancial variables. The ECRI’s recipe is a secret, though it probably includes some financial-market variables like the S&P 500 and the high-yield corporate bond spread.

Today's Morning Briefing: Fundamentally Sound.(1) The bears’ favorite chart. (2) Investment strategists shouldn’t be preachers. (3) Lesson #1: Don’t fight the Fed. (4) Will the day of reckoning be when QE is terminated? (5) Is terminating the same as tightening? (6) S&P 500 is one of 10 leading indicators. (7) Our FSMI rises to record high. (8) S&P 500 rebound since Feb. 3 led by cyclicals. (9) Small business owners more optimistic and aiming to hire additional workers. (More for subscribers.)

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