Stocks Outlook – Thursday, Oct. 4

Thoughts

1 am: High yield spreads continue to narrow. A medium-long term bullish sign for the stock market.

High yield spreads continue to trend downwards.

This is a medium-long term bullish sign for the stock market and suggests that the stock market will continue to trend higher in the medium-long term. Bond market participants are smarter than stock market participants, which is why the bond market is a leading indicator for the stock market. Historically, high yield spreads widen (trends higher) before bull markets top.

1 am: Unit profits are down: this equities bull market doesn’t have a lot of years left.

Corporate unit profits have been trending downwards since the end of 2014.

This IS NOT a timing indicator for predicting the end of bull markets. Sometimes unit profits will fall a year or two before recessions and bear markets begin. Sometimes unit profits will fall for half a decade before bear markets begin. But this does tell us that 2014/2015 marked the halfway point for this economic expansion and bull market.

This indicator suggests that this equities bull market doesn’t have many years left. By the Medium-Long Term Model‘s estimates, mid-2019 is the most likely top.

1 am: Japanese stock market breakout!

The Japanese stock market has broken out of a big consolidation.

Historically, these breakouts are neither consistently bullish nor consistently bearish for the Japanese stock market.