- by New Deal democrat
I am currently on vacation, and as the shutdown continues with no end in sight, the only sources of economic data are from the Fed and its regional banks, the States (unemployment claims and sporadic updates on tax withholding), and private sources.
In other words, I might play hooky several days a week, so don’t be surprised.
There is one thing worth following up on today. That’s the health of the stock markets. Aside from the fact that the stock market is a short leading indicator, it is particularly important at the moment because of the “wealth effect” on consumers who have watched their paper portfolios increase sharply in value over the past 6 months.
Last week I pointed out that one bellwether for the health of the markets was the advance-decline line; that is, the number of companies in the indexes that are participating in an advance or decline. In particular, I pointed out that the advance-decline line had warned of unhealthy markets in advance of both the 2000-01 dotcom bubble collapse and the Great Recession.
Well, we’ve had some interesting action over the past week, with the return of China Tariff-palooza and its almost immediate walk back (but not before one or more people with apparent inside information made a killing). And this morning I read that several over-levered players adjacent to the auto industry went bankrupt last month.
So let’s take a look at several different indexes, updated through yesterday.
Last week I showed the S&P 500 advance-decline line. As of yesterday, it continued to be generally neutral, with almost no advance compared with 3 months ago, but no downtrend, and indeed several new highs earlier this month:
But the NYSE a-d line has not nearly been so healthy:
It is no better at present than it was almost 3 months ago, and has been in a clear downtrend since early September.
Even worse is the small cap Russel 2000 a-d line:
It peaked at the end of last year, and although it rebounded after April, it has had a rrenewed decline since a secondary peak in August.
On the other hand, the Nasdaq a-d line continues to be positive:
Like the S&P 500 a-d line, it made new highs earlier this month, and even the pullback in the last few days did not take it down it its August or September lows.
This confirms my general view of the economy. In the broadest terms, it is pretty unhealthy. But in the specific areas where there has been a Boom (or, maybe, Bubble), it has not cracked at all. I’ll continue to watch to see if that happens; and if it does, my suspicion is, “look out below!”
