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

+6

What's this?

Updated July 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: Positive

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

Recent Highlights:
The volatility continued in the second quarter as the unexpected Brexit results stunned the markets around the world. Despite a series of tumultuous trading days during the quarter, the S&P 500 rose about 2.5% while both mid- and small caps posted a 3.1 and 3.8% gain respectively. The markets are currently trading close to an all-time high. So far this year the S&P 500 is up 5.5% and the Dow Jones Industrial Average is up about 5.7% as of July 11th.

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:
The American consumer is showing more confidence now after a slow first quarter. Consumer spending rose by 0.4% in May after rising 1% in April which was the biggest gain since 2009. The report confirms the ongoing healthy trend of people spending money on buying big ticket items such as refrigerators, roofs, cars and TV’s.

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: Manufacturing continued to grow with a reading of 53.2 in June after registering 51.3 in May. The numbers are signaling a moderate expansion as the economy continues to muddle along. The report showed overall positive developments with production rising to 54.7 from 52.6 and new orders to 57.0 from 55.7. Additionally, employment crossed above 50 for the first time since November 2015, signaling an expansion. Moreover, the majority of surveyed members reported a “negligible” impact from Brexit on their businesses.

Global PMI manufacturing marginally increased to 50.4 in June from 50.0 in May. Global production and new orders rose only marginally during June. Germany, Italy, Austria and Ireland demonstrated solid improvement in operating performance while China and Japan, which are two of the largest Asian manufacturing nations, both reported contractions in June. In general, the average pace of expansion over the second quarter as a whole was the weakest since the final quarter of 2012.

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:
CPI gained 0.3% in May partially due to higher energy prices. Core CPI, which excludes food and energy, rose by 0.2% in May. Rent inflation accelerated, with owners’ equivalent rent rising by 0.35% last month, the fastest pace since mid-2006. Over the last 12 months, the CPI increased 1.0% while the core CPI rose 2.2%.

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 1.8% to a seasonally adjusted annual rate of 5.53 million in May, reaching a new post-crisis high. On a regional level, sales rose in the Northeast, South and West while falling in the Midwest. Over the last 12 months, sales are up 4.5% which is the highest annual pace since February 2007. The median house price increased 4.7% from a year ago to $239,700.  Unsold inventory is at a 4.7-month supply at the current sales pace, which is unchanged from April. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales declined by 6.0% in May to a seasonally-adjusted annual rate of 551k units after a large gain in April. Over the last 12 months, sales are up 8.7%. The inventory of new homes on the market reached the highest since September of 2009. This represents a supply of 5.3 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 25 following the Brexit vote, volatility has dropped back down. The VIX is trading now around 14. 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 0.39% (3-Month LIBOR 0.66% – 3-Month Treasury Bill 0.27%). It is still well 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:  +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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