We watch closely what is happening in markets. We cannot predict the future but we can follow the data. Looking at this we think we might be closer to a recession. Although this is not good for jobs, it is good for markets and it is at this point that markets start to stabilise and we see a recovery. Below we share some of the data points we have been following.
The Fear and Greed Index has bounced a lot during August and has moved back into “greed”. This is a guide to investor sentiment in the US.
The VIX index is also a good guide to sentiment and this remains relatively low, although there are spikes which reflects a fall in markets.
It is also worth reflecting on recent headlines.
The general feeling seems to be moving towards a recession. The chart below is the Global Manufacturing Purchasing Manager Index. The data is a good indicator of the health of an economy. Below 50 and this is a flag. Eurozone is at 43.5, US 47.9 and UK 43.0.
Below is the US Economic Monitor which is showing a greater move towards recession risk.
Below shows the same for Europe:
The chart below shows price to earnings rations and these still seem elevated.
When we look at the data you can see much of this is driven by the US.
When the markets turn it is likely those regions that are undervalued will do better over the long term.
In summary, what we are seeing is greater noise pointing to weaker economic data. Not all parts of the market are overpriced and once we reach the bottom of this cycle the recovery may come quickly. We don’t know when that will be but we feel we are edging closer to that point.
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