Capital Market Indicators for August 3

U.S. Economy—“It looks like the data are pointing to a slowing in the pace of recovery.” — Fed Chair Jerome Powell

• We expect 2020 real U.S. GDP to contract about 8.0%. The economy is most certainly in a recessionary period.
• Based on the Federal Reserve Bank of Philadelphia’s U.S. Coincident Index, our gauge of U.S. economic activity (above left) registers a May 2020 reading at the 1^st percentile.
• Recent developments:
  • GDP collapsed at a 32.9% annualized rate in the second quarter, the deepest decline since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958.

Capital Markets—The Nasdaq Composite closed at an all-time high on July 20, its 12^th record high since mid-March.

• Valuation:
  • Based on the S&P 500 trailing 12-month price-to-earnings ratio, our gauge of U.S. equity valuation (above center) registers a current reading in the 9^th percentile. Stock valuations are significantly higher than a year ago.
• Sentiment:
  • Based on the National Association of Active Investment Manager’s Exposure Index, a contrarian indicator, our gauge of U.S. stock market sentiment (above right) registers a July 29, 2020 reading in the 4^th percentile.