Bedel Barometer

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

+6

What's this?

Updated February 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: Positive

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

Recent Highlights:
After a very strong performance in 2013, it was not surprising that equities were more volatile in 2014. Going into 2015 we are seeing some continued volatility. Nevertheless, markets are still trading close to all time high. As of this writing, the Dow Jones Industrial Average was above 18,100 and S&P 500 above 2,100.

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:
U.S. consumer spending fell 0.3% after gaining 0.5% in November and 0.3% in October. Spending grew at a 4.3% annualized rate in the fourth quarter. The decline was the largest since 2009 as households decided to save the extra cash from cheaper gasoline. Additionally, we saw weak auto sales and weather-related softness in demand for utilities. Despite ending 2014 on a weak note, we expect consumer spending to rise in 2015 due to improving labor market and rising household income.

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 cause of economic growth.

Recent Highlights: 

Domestic economic activity in the manufacturing sector expanded in January to 53.5 compared to 55.1 in December. Although it expanded at a lower pace than the previous month, 2015 appears to be kicking off with stronger anticipation of demand. Overall, U.S. manufacturing continues to look bright in 2015.

The JPMorgan Global Manufacturing PM, tracked by Markit, moved higher from December's 16-month low of 51.5 to 51.7 in January. This report shows new orders had the largest monthly increase since November amid near-stagnant export flows. The fastest growth in the developed world was seen in Ireland, followed by Spain and the Netherlands. Four out of the eight countries that saw weakness in manufacturing activity in January were Euro countries. Russia experienced the steepest drop of all countries, with its PMI plummeting to a 67-month low. This is the steepest decline since the height of the financial crisis in 2009. Japan saw an expansion of manufacturing activity but the rest of Asia essentially stagnated. China saw a marginal contraction for a second successive month. Despite the global slowdown, the momentum is still ok. 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 decreased 0.4% in December from the previous month. Over the last 12 months, inflation increased 0.8%. Core inflation (excluding food and energy) remained unchanged in December after increasing 0.2% in October and 0.1% increase in November. 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 rose 2.4% in December to a seasonally adjusted rate of 5.04 million. Sales were higher by 3.5% from a year ago. All-cash sales were 26% of transactions in December. This compares to 25% in November and 32% in December of last year. The national median existing-home price for 2014 rose to $208,500 from $197,100 which is a 5.8% increase from 2013. Existing homes available for sale dropped 11.1% to 1.85 million in December, which represents a 4.4-month supply. This is down from 5.1 months in November.

New home sales finished the year strong as sales increased 11.6% in December to a seasonally adjusted annual rate of 481,000. Overall, an estimated 435,000 new homes were sold last year which is up from 429,000 in 2013. Over the past 12 months, median prices for new homes rose 8.2% to $298,100 from $275,500.

Given the strong finish to 2014, overall momentum of the housing market appears 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:  After a spike up to above 30 in October due to a “growth scare”, volatility has come down and continues to remain relatively low to historical levels. Currently, the VIX is trading at 14.85 compared to 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:
  The recent spread of 0.23% (3-Month LIBOR 0.25% – 3-Month Treasury Bill 0.02%) is well below the average historical spread of 0.60%. Data is as of February 5, 2015.

The current score for the Bedel Barometer© is +6, which suggests solid growth in the foreseeable future. 


Score:  +6

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.       
Turning Capital Losses into Client Gains

Turning Capital Losses into Client Gains

When working with business owners who have a fairly significant capital loss from their business, we may be able to utilize those losses by converting a large portion of an IRA to a Roth IRA. Doing so will allow the business owner to move those tax-deferred dollars to a tax-free bucket while paying little to no income tax. Now those converted dollars will grow tax free for retirement.

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