The economy and stock market move in the same direction in the medium-long term. Hence, leading economic indicators are also leading indicators for the stock market.
Thoughts
1 am: The next bear market will be more like 2000-2002 than 2007-2009
Ray Dalio went on CNBC yesterday and said something very interesting:
The next crisis won’t be a big bang-type affair but one that leads to more severe social and political problems.
I agree with Dalio’s statement. The 2008 market crash was a financial catastrophe that could have led to a Great Depression. In fact, the 2008 financial crisis was VERY EASY to predict. A potential recession and housing crisis had been brewing for years before the market crashed in 2008.
A big-bang crisis similar to 2008 is very unlikely to happen today. There is less excess in the financial system. More importantly, the banks are well capitalized and have significantly reduced their leverage vs. 2008.
Instead, the next bear market is more likely to be a series of mini-crisis, one following the other. That’s why I think a 2000-2002 style bear market is more likely than a 2007-2009 style bear market.
1 am: Don’t read too much into yesterday’s bullish outside reversal bar.
Something rare happened today.
Today’s OPEN was below yesterday’s LOW. Today’s CLOSE was above yesterday’s HIGH. In other words, bullish outside reversal bar.
I wouldn’t read too much into this. Forward returns aren’t heavily bullish or bearish.$SPX $SPY pic.twitter.com/oSDJWnkx3o
— Troy Bombardia (@bullmarketsco) September 11, 2018
