Bedel Barometer

Bedel Barometer

-6-5-4-3-2-10+1+2+3+4+5+6

+3

What's this?

Updated May 2018

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 PerformanceRating: 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 Q1, domestic and international equity markets were positive in April. The S&P 500 was down -0.76% in Q1, followed by a positive 0.38% in April. That results in a negative -0.38% year-to-date return as of 4/30/18. The MSCI ACWI Ex-US was down -1.18% through Q1, and then rallied nicely in April to break into positive territory for the year. As of 4/30/18, the year-to-date return of the MSCI ACWI Ex-US is positive 0.40%. The uncertainty of tariffs have sparked increases in prices within certain areas of the economy and added to the potential for inflation and rising interest rates. Aside from these fears that are being priced into the market, S&P 500 earnings growth is off to a great start for companies that have reported results for Q1. As of 4/27/18, more than half of the S&P 500 companies had reported actual results for Q1 2018. Of those companies, 79% reported actual earnings per share above their estimates, mostly driven by above-estimate sales. (Source: Factset)


Consumer SpendingRating: Positive

Why we watch it:

Over 70% of the U.S. economy is based on personal consumption. A reduction in consumer spending will cause slower growth in the economy.


Recent Highlights:

Consumer spending increased 0.4% in March, in line with the consensus and personal income rose 0.3% in March, broadly in line with increases from recent months. The first estimate of first quarter GDP came in at 2.3%, above expectations. Consumer spending in the first quarter recorded a 1.1% increase and the personal savings rate was 3.1%. The growth in consumer spending is very strong right now.


Manufacturing ActivityRating: Positive

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 tracked by J.P.Morgan and IHS Market in association with ISM and IFPSM. The index monitors data 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:

ISM manufacturing eased slightly from February and March’s numbers—although still strong—registering 57.3 for April. This drop for the second straight month is due to shortages of skilled workers and rising capacity constraints. However, strong global demand continues to support manufacturing. New orders and factory employment also dipped from March, but are still strong at 61.2 and 54.2 in April, respectively.

Global PMI posted 53.5 in April, up from March’s six-month low of 53.3. Global PMI has signaled expansion in each of the past 26 months.


Consumer Price StabilityRating: 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. The Fed’s inflation target is 2%.


Recent Highlights:

Headline CPI dropped -0.1% in March, held down by gas prices. Over the last 12 months, CPI increased to 2.4% while the core CPI, which excludes food and energy, recorded in line with expectations at 2.1%.


Housing MarketRating: Neutral

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 eased from February’s numbers, but still increased 1.1% to a seasonally adjusted annualized rate of 5.60 million units in March. However, existing home sales dropped -1.2% on a year-on-year basis due to supply on the market well below the demand. The median home price in March was $250,400, up 5.8% from March 2017. This is the 73rd straight month of year-over-year gains. Unsold inventory is at about 3.6 month supply. A three to six-month supply is considered a healthy balance between supply and demand.

New home sales increased by 4.0% month-over-month in March to a seasonally-adjusted annualized rate of 694k units. The housing market has slowed in recent months as a shortage of homes slows sales while pushing up prices. Note that the new home sales report is typically very volatile and the data is frequently revised.


VolatilityRating: Neutral

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:

The VIX closed at 15.97 on May 2, 2018, slightly below the historical average of around 18.5. The VIX has been trading lower over the past few weeks, but is still near historical average levels. Our rating remains neutral for now.


TED SpreadRating: Neutral

Why we watch it:

The TED Spread is the banks’ cost of borrowing short-term money minus the Treasury’s cost of borrowing short-term money. The difference between the three-month LIBOR interest rate and the three-month Treasury Bill interest rate measures the degree of riskiness of the bank lending market. 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 as of April 25, 2018 is 0.55% (3-Month LIBOR 2.37% – 3-Month Treasury Bill 1.82%). The spread narrowed slightly in April after a sharp increase in March. The current level of 0.55% is slightly below the historical average spread of 0.58%. We are maintaining a neutral rating for now.



While past performance is not a guarantee of future results, the current score for the Bedel Barometer© is +3, which suggests growth in the foreseeable future, but with less certainty.

Score: +3

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!.

Why Bedel?Schedule a Consultation