Capital Market Indicators for September 29

U.S. Economy—Mixed positive and negative news. Economy appears to be growing slowly.

• Our forecast for next year has changed from an economic soft landing to a recession starting in early 2023. This recession is expected to be mild and last three quarters because of still solid underlying fundamentals (e.g., labor market, etc.).
• Based on the Federal Reserve Bank of Philadelphia’s U.S. Coincident Index, our gauge of U.S. economic activity (above left) registers a July 2022 reading at the 63^rd percentile (weakening from 87^th last month).
• Recent developments:
  • The Federal Reserve approved its third consecutive interest-rate increase of 75 bps and signaled additional large increases were likely at coming meetings as it combats inflation. They also initiated a program to begin withdrawing stimulus.

Capital Markets—The S&P 500 declined sharply in recent weeks and was down 22.4% YTD as of 9/26/22.

• 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 21^st percentile. Stock valuations are lower than a year ago at similar earnings levels.
• 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 9/21/22 reading in the 90^th percentile (bullish).