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

Bedel Barometer

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

+5

What's this?

Updated November 2016

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:
After a volatile first half of the year, the third quarter was characterized by exceptionally low levels of volatility in the markets. In general, the markets saw an upward move in risk assets despite the Brexit decision that stunned the markets around the world. Although September had a slight pullback, equities generally were up. The S&P 500 rose about 3.0% while both mid- and small caps posted a 4.1% and 9.0% gain respectively.  So far this year the S&P 500 is up 3.9% and the Dow Jones Industrial Average is up about 2.7% as of November 7th.

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:
Consumer spending rose more than expected in September as households boosted purchases of motor vehicles and inflation increased steadily. It increased 0.5% after dipping 0.1% in August which translates to a 2.1% annual pace. Personal income increased by 0.3% (mom) in September. Real disposable income was unchanged last month, but was up 2.1% from a year earlier.

Manufacturing Activity Rating: Neutral

Why we watch it: The health of the economy is dependent on the health of the manufacturing sector. Historically, it has been the path to development and an important driver of economic growth. Domestic manufacturing activity is tracked by the Institute of Supply Management (ISM) which releases a monthly index while global activity is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM. 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 an 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: Manufacturing index edged up to 51.9 in October. The key components were mixed: production (to 54.6 from 52.8) and employment (to 52.9 from 49.7) improved, while new orders fell (to 52.1 from 55.1) and the inventory index dropped to 47.5 from 49.5. Overall the report points to a modest expansion in the domestic manufacturing sector.

Global PMI manufacturing saw an improved growth in October as it rose to 52, its highest level since October 2014. The readings signaled a broad-based expansion with 22 out of the 31 nations registered better operating conditions. South Korea, Indonesia, Malaysia, Thailand, Singapore, Myanmar, Brazil, Turkey and Greece saw declines.

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:
Headline CPI rose 0.3% in September, boosted by energy and food prices. Over the last 12 months, the CPI rose 1.5% while the core CPI, which excludes food and energy, rose 2.2%. In general, while headline inflation remains very low, most other areas of the economy are seeing moderate price increases.

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 strongly in September, propelled by first-time buyer sales which represented a 34% share.  Sales rose by 3.2% to a seasonally adjusted annual rate of 5.47 million from 5.30 million in August. The median home price in September was $234,200, up 5.6% from a year ago ($221,700). Unsold inventory is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales rose 3.1% in September to a seasonally-adjusted annual rate of 593k units. Sales in the Northeast recorded the biggest gain (33.3%), followed by the Midwest (8.6%) and the South (3.4%) while sales in the West fell 4.5%. The median sales price of new houses sold rose to $313,500 from $293,800 in the previous month and $307,600 a year earlier. The stock of new houses for sale fell 0.4%. This represents a supply of 4.8 months at the current sales rate. Note that the new home sales report is typically very volatile and the data is frequently revised.


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 spiking to 22 following the uncertainty of the presidential election, volatility has dropped back down. The VIX is trading now around 18. This 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:
  Current spread is 0.51% (3-Month LIBOR 0.88% – 3-Month Treasury Bill 0.37%). Although the spread is creeping up, it is still below the average historical spread of 0.60%.

While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +6, 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.       
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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