Bedel Barometer | Wealth Management and Retirement Planning | Bedel Financial Consulting, Inc. Indianapolis

Bedel Barometer

-6 -5 -4 -3 -2 -1 0 +1 +2 +3 +4 +5 +6


What's this?

Updated October 2015

Back in 2009, we identified key areas that have historically been strong indicators of the strength in the U.S. economy. The idea was to use these indicators to determine whether the economy was going to rebound or remain in crisis mode in the year ahead.

In the short run, the Bedel Barometer should be used as a measure of the overall health of the U.S. economy—not as a sign of the health of the stock market. In the long run, the health of the U.S. economy should have a significant impact on the performance of the stock market. 

Since its inception, the Bedel Barometer has consistently had a positive score, suggesting the economy was initially moving toward growth and then sustaining that growth.

Here is how each indicator currently stacks up and its importance:

Stock Market Performance Rating: Negative

Why we watch it:
The stock market tends to be forward looking and it is a leading indicator of economic growth.

Recent Highlights:
Despite having a volatile year in 2014, the S&P 500 returned 13.6% which is very favorable given the strong returns in 2013. 2015 has been more challenging so far as we saw the equities markets go through a correction in August. Both the S&P 500 and the DJIA are currently down from their peak in July, about 11% and 12% respectively. So far this year the S&P 500 is down -3.46% while the Dow Jones Industrial Average is down -6.39%.

Consumer Spending Rating: Positive
Why we watch it:
Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending would cause a slower growth in the economy.

Recent Highlights:
Personal income continued to rise in August by 0.7%, while consumer spending accelerated to 3.6% after an earlier estimate of 3.1%. Consumers chose to spend more as the labor markets continue to improve and confidence has increased. Overall, the momentum is positive.

Manufacturing Activity Rating: Neutral

Why we watch it: The health of the economy is critically dependent on the health of the manufacturing sector. Historically, it has been the path to development and the most important driver of economic growth. Domestic manufacturing activity is tracked by the Institute of Supply Management which releases a monthly index. The index monitors things like employment, production inventories, new orders and supplier deliveries. It is based on surveys of more than 300 manufacturing firms and it’s considered a very important economic measure. The index value ranges between 0 and 100. A value below 50 may indicate a slowdown in the economy, especially if the trend persists over several months. A value above 50 likely indicates a time of economic growth.

Recent Highlights: Domestic manufacturing sector expanded at the slowest pace in two years, dropping from 52.7 in July to 51.1 in August. New orders saw a 4.8 decrease from 56.5 to 51.7 while the production index dropped 2.4 to 53.6 compared to 56.0 in July. Global manufacturing growth also expanded at its weakest pace in two years in August coming in at 50.7 compared to 51.0 in July. The PMI indicates that global activity remains relative subdued. Global manufacturing continues to send mixed signals. We continue to hold a neutral rating.

Consumer Price Stability Rating: Positive

Why we watch it:
Mild inflation is good for the economy, because it promotes consumption without destroying the value of people's savings. If you know something is slightly going up in price down the road, you'll be more likely to purchase it now. If this effect is mild, it doesn't hurt savings rates very much. Deflation, however, punishes an economy because it hurts consumption. If you know something will be cheaper tomorrow or next year, you're more likely to wait until tomorrow to buy it.

Recent Highlights:
U.S. consumer prices dropped for the first time since January -0.1% in August. Over the last 12 months, core inflation, which strips out food and energy costs, increased 1.8% while headline CPI rose 0.2%. It was the fifth time in six months that the 12-month change was 1.8 percent. It appears that inflation continues to remain tamed. Going forward, our view is cautiously optimistic as the effects in the aftermath of QE still remains to be seen.

Housing Market Rating: Positive

Why we watch it: The economy typically benefits directly and indirectly from increased housing activity. It is estimated that for every $100 in value resulting from housing construction an extra $40-$80 is added to the economy due to housing-related spending.

Recent Highlights:  Existing home sales dropped 4.8% in August to a seasonally adjusted rate of 5.31 million. Despite the drop, year-over-year sales were up a robust 6.2%. Prices continue to climb as the median home price hit $228,700 in August, a 4.7% increase over a year ago. Current sales pace represents 5.2 months of unsold supply. New home sales rose by 5.7% in August to a seasonally adjusted annual rate of 552,000 after July was revised up to 522,000. The data suggests that the demand for housing is strengthening heading into the fall. Note that the new home sales report is typically volatile and the data is frequently revised.

Overall, the US housing market is generally quite healthy. Given the historically low mortgage rates and continued job growth, the overall momentum of the housing market continues to be positive.

Volatility Rating: Neutral

Why we watch it:
  VIX is the symbol for the Chicago Board Options Exchange's volatility index. It’s a weighted mix of the prices for a blend of S&P 500 Index options, from which implied volatility is derived. In other words, it measures how much people are willing pay to buy or sell the S&P 500. The VIX goes up when there’s turmoil in the market, and goes down when investors are content or at ease with the economic outlook.

We like to watch the VIX, because it measures the cost of buying insurance for stock protection (through options). When the cost of protection is high, volatility is usually high and the potential for declining stock values is higher.

Recent Highlights:  Volatility spiked above 40 in August but has since then come down. The VIX is back down trading at 23.11 which is slightly above the 20-year average 20.

TED Spread Rating: Positive

Why we watch it:
The TED Spread is the Treasury’s cost of borrowing short-term money minus the banks’ cost of borrowing short-term money. When the spread is significant, banks worry about being repaid when loaning money to other banks, thereby creating uncertainty. This can cause slower growth in the economy.

Recent Highlights:
  Although the recent spread of 0.32% (3-Month LIBOR 0.33% – 3-Month Treasury Bill 0.01%) has edged up, it is still well below the average historical spread of 0.60%. Data is as of September 25, 2015.

While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +3, which suggests solid growth in the foreseeable future.    

Score:  +3

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio.  Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Bedel Financial Consulting, Inc. Portfolio Managers.  The opinions expressed are those of Bedel Financial Consulting, Inc. and are subject to change at any time due to the changes in market or economic conditions.       
Identifying “Outside the Box” Gifting Strategies

Identifying “Outside the Box” Gifting Strategies

While establishing an appropriate investment strategy with new clients, we take the time to consider every option, while ensuring the chosen plan does not have any negative unforeseen surprises. For example, if a client has several long-held stocks in their portfolio with very low cost basis, our first concern is the possible high tax consequence should they want to sell these holdings.  By taking the time to think “outside the box”, we may be able to accomplish another goal of the clients, such as gifting to family and charitable causes close the client.  By choosing to gift the zero-basis appreciated stock instead of cash to children or charities, the client is able to avoid having to pay long-term capital gains tax and the children and/or charity can benefit from this generosity, a win-win all around!.