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 November 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: Neutral

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. Nevertheless, we saw a relief rally in October which helped erase some of the drop. So far this year both the S&P 500 and the Dow Jones Industrial Average are up slightly at 0.06% and 0.06%.

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 increased by only 0.1% in September from the previous month as it was held back by flat wage and salary compensation. This affected consumer spending which edged up just 0.1% in September after rising 0.4% in August. Although there is some cooling in domestic demand, the momentum still appears 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: The domestic manufacturing sector remained essentially unchanged in October at 50.1 compared to 50.2 in September. Both the production index (to 52.9 from 51.8) and new orders index (to 52.9 from 50.1) improved on the month while the employment index fell to 47.6 from 50.5 previously. Overall, the report suggests a possible stabilization in US manufacturing output.

Global manufacturing growth continued to slow in September coming in at 50.6 compared to 50.7 in August. Both the US and the EU remained positive contributors while the Asia region remained one of the weaker regions. The PMI continues to indicate that global activity remains relatively subdued. 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 increased in October by 0.2%. Food prices gained 0.1% while energy prices increased by 0.3%. Over the last 12 months, core inflation, which strips out food and energy costs, increased 1.9% while headline CPI, which includes food and energy, was up 0.2%. It appears that inflation continues to remain modest.

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 rose by 4.7% in September to a seasonally adjusted rate of 5.55 million which puts the market on pace for its best year since before the recession. Current sales pace represents 4.8 months of unsold supply.

New home sales dropped by 11.5% in September. Additionally, earlier months were revised down by a net 39k units which effectively reverses the gains over the last two months. The decline was across all four Census regions with the largest drop in the Northeast. Note that the new home sales report is typically very volatile and the data is frequently revised. We would need to several months of data before confirming a slowing trend.

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: Positive

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 17.60 which is below the 20-year average of 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 0.34% (3-Month LIBOR 0.36% – 3-Month Treasury Bill 0.02%) has edged up, it is still well below the average historical spread of 0.60%. Data is as of November 17, 2015.

While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +5, which suggests solid growth in the foreseeable future.  

Score:  +5

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.       
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Many individuals have sizeable positions in their employers’ stock. While our crystal ball is not always clear about how a certain stock may perform, we go into great detail with our clients about the potential impacts that owning a large position can have with their long-term financial security.  For example, by discussing our concern with a client, they may decide not only to reduce their holding but eliminate the holding completely, especially if they no longer have a current correlation with the company.  By removing the large dependency upon a single company, the client would not longer need to be concerned with the chance that the company could announce devastating news, plummeting the stock price and jeopardizing their situation.  Obviously, timing is imperative but it does go to prove that a big difference can be made by having a simple conversation about risks and financial security.