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

+4

What's this?

Updated May 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:
The equity markets took investors on a roller coaster ride last quarter, with the market dropping 11% in the first part of the quarter before fully reversing the losses with a powerful rally. In the end, the S&P500 gained a modest 1% for the first quarter of 2016 and 2% over the past year. In general, value actually beat growth for the quarter, with the latter category held back by a very weak quarter for financials and healthcare stocks. So far this year the S&P 500 is essentially flat and the Dow Jones Industrial Average is up about 1.3%.

Consumer Spending Rating: Neutral
 
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 edged up 0.1% in March compared to a 0.2% rise in February as purchases of nondurable goods such as clothing offset a large fall in spending on autos and other durable goods. Overall, consumer spending has been lackluster for the past 4 months which played a big role in first quarter’s weak GDP growth.

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: After a minor dip in activity, manufacturing seems to be regaining some strength. Although the index declined to 50.8 in April from 51.8 in March, it’s still remains above 50 which indicates a modest expansion. The report showed mixed signals with the production and new orders both edging down while employment and new export orders moving up. Moreover, inventories ticked down to 45.5 from 47.0 which highlight the fact that the inventory overhang has potentially not fully cleared.

Global PMI manufacturing data signaled that conditions remain subdued as it registered at 50.5 in March. Manufacturing production was essentially stagnant in Asia with minimal increases in China, Taiwan, Indonesia and Vietnam and contractions in Japan, South Korea and Malaysia. Growth improved in Mexico and Canada while the downturn in Brazil continued. Nearly all of the Eurozone nations reported higher output in March with the exception of Greece.

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 gained 0.1% in March as a rebound in gas prices was partly offset by a drop in the cost of food. Over the last 12 months, the CPI increased 0.9% compared to 1.0% in February. The core CPI (excluding food and energy) also gained 0.1% in March after increasing 0.3% in February. In the 12 months through March, the core CPI rose 2.2% after gaining 2.3% in February. Current inflation data suggest the Fed will remain cautious about raising interest rates this year.

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 5.1% in March to a seasonally adjusted rate of 5.33 million, rebounding from a downward-revised 7.3% decline in February. Overall, sales across all four geographic regions increased, led by the Northeast and Midwest, +11.1% and 9.8% respectively. Over the last 12 months, sales were up 1.5%. Despite the improvement in supply, the median house price increased 5.7% from a year ago to $222,700.  Current inventory supply is 4.5 months. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales fell by 1.5% in March to a seasonally adjusted annual rate of 511,000. This came after a downward revision of 0.4% in February. The decline was mainly due to a sharp drop in home sales in the West region. The median sales price was $288,000 while the average sales price was $356,200. 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:  Volatility further decreased in April after spiking in January. The VIX is trading now about 15. 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:
  Although the recent spread of 0.42% (3-Month LIBOR 0.64% – 3-Month Treasury Bill 0.22%) has edged up, it is still well below the average historical spread of 0.60%. Data is as of May 2, 2016.

While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +4, which suggests solid growth in the foreseeable future.  


Score:  +4

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!.
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