Economic Releases:
The index of leading economic indicators (LEI) for August released last Friday, advanced 0.2%, which was less than expected. Single family housing starts declined 14.4%, however, that reading follows a sharp increase of 22.9% in July. From month to month, housing data is notoriously volatile, but the longer term trend is useful. The 12-month moving average stands at the highest level since October 2008.

Credit Market Indicators:
Real and Nominal Yield Curves YTD change and since the end of August– Treasury Yield Curve
The nominal curve has flattened significantly since the beginning of the year, with long term rates dropping and more recently, intermediate term rates increasing. Within the last 3 weeks, however, this trend has reversed. Just in the month of September, there has been a near 25 basis point move higher along the 7 to 10 year portion of the treasury yield curve.
Interestingly, the real yield on the 5 year note has turned positive and has jumped 40 basis points month to date.

Current Shiller CAPE Ratio:
The CAPE ratio remains significantly higher than its historic mean of 16.55 with a Shiller PE Ratio of 26.5 at the close of market Friday. While not useful as a timing indicator, elevated CAPE levels have correlated strongly with less than historic levels of annualized equity returns on a forward looking basis.

Volatility Indicators:
With the S&P 500 Index advancing last week, fueled in part by the enthusiasm surrounding the Alibaba IPO, the VIX ended last week at a 12.21 level, down from the prior week’s 13.31 reading.

Momentum Indicators:
Near term momentum continues to strongly favor domestic stocks over developed international equities. Nearly all domestic sub-categories were up last week and nearly all international categories were negative. REITS and emerging market stocks have been two of the more resilient asset classes over the past few months, but last week they were among the weakest equity categories. Sluggish economic growth in Europe and China along with escalating global tensions is weighing on international stocks.*

Economic Releases:
August retail sales matched forecasts, advancing 0.6%.  The latest reading is the 7th consecutive monthly increase. Consumer sentiment reached a 14-month high. The index of leading economic indicators (LEI) for August will be released this Friday.  We look for this reading to confirm a strengthening U.S. economic growth picture.

Credit Market Indicators:
Real and Nominal Yield Curves YTD change – Treasury Yield Curve
The nominal curve has flattened significantly since the beginning of the year, with long term rates dropping and more recently, intermediate term rates increasing. Within the last 2 weeks, however, strength in bonds has reversed course. Just in the month of September, there has been a 20 basis point move higher in the 10 year note. At the shorter end of the curve, the 2 year note has moved up 5 basis points since August.

Current Shiller CAPE Ratio:
The CAPE ratio remains significantly higher than its historic mean of 16.55 with a Shiller PE Ratio of 26.24 at the close of market Friday.

Volatility Indicators:
The VIX ended last week at a 13.31 level. Volatility picked up last week on general market weakness and increased uncertainty related to geopolitical events in Eastern Europe and in the Middle East.

Momentum Indicators:
Near term momentum strongly favors domestic stocks over developed international equities. Emerging market stocks and REITS two of the more resilient asset classes during the past several weeks were among the weakest categories last week.*

Recent Economic Releases:
None for this week’s post.

Credit Market Indicators:
Real and Nominal Yield Curves YTD change – Treasury Yield Curve
The nominal treasury yield curve continues to flatten out as the market closed on Friday with treasury yielding 2.46%.
Source: US Department of the Treasury

Current Shiller CAPE Ratio:
Currently at a ratio of 26.49, CAPE is 59% higher than its historic mean of 16.6.  The “takeaway” is that while this is not a timing indicator, the current level is well above historic mean values and when this valuation measure is this high, historically, the annual future returns have been very low.
Source:  Multpl.com

Volatility Indicators:
Closing on Friday at 12.09, the VIX appears to be complacent, compared to being as high as 17 in late July through early August. The inference is that this continues to be a market that can be carefully invested in.
Source:  Yahoo Finance

Momentum Indicators:
Relative to a general trend, momentum is currently positive.*