Retirement Lifestyle Advocates
Weekly Market Update by Retirement Lifestyle Advocates
What to Make of Stocks Now
While stocks are still in an uptrend, there are some signs emerging that may indicate an approaching top in equities. Keep in mind that what I am sharing with you are current observations; I am not suggesting that a decline in stocks is imminent. However, prudent investors may want to be a bit more defensive in light of what I’m observing here.
First, the cyclically adjusted price-earnings ratio in the market is severely elevated. If you’re not familiar with cyclically adjusted price-earnings, or CAPE, it is a metric that compares equity prices to their 10-year average earnings. As you might expect, higher CAPE levels often occur at stock market tops.
When CAPE ratios are above 22, it often signals a market top. For example, in November 2021 (post-COVID), the S&P 500 CAPE ratio hit 38.6. (Source: https://www.visualcapitalist.com/sp/the-bubble-indicator-is-the-stock-market-overheating/)
At the market peak during the Great Financial Crisis when the housing bubble burst, the CAPE ratio hit 27.6. As the tech stock bubble topped in late 1999, the CAPE ratio reached 44.2. In December of 1968, as the Nifty Fifty bubble began to unwind, the CAPE ratio topped out at 22.6. In September of 1929, one month before the market collapsed, the CAPE ratio hit 32.6.
At the present time, the CAPE ratio in the stock market stands at 37.9; higher than at any time historically except prior to the tech stock bubble unwinding.
A look at a chart of the S&P 500 also raises a potential red flag.
This chart is a daily price chart of an exchange-traded fund that tracks the price action of the S&P 500. The chart begins on the left in May of 2024 and continues to the present. Notice that after making a series of higher highs in price and higher lows in price, market highs have gotten ‘stuck’ at current levels three times.
As a student of technical analysis, I can tell you that it is rare that price will test resistance four times. That leads me to conclude that there is a high probability that either a breakout to higher prices or a decline may begin.
Given the current market valuations, we’ll want to watch this carefully.
Washington DC Real Estate Market Collapsing as DOGE Begins Government Funding Cuts
With the fast closure of USAID and other spending cuts, including the likely shuttering of the US Department of Education, many Washington bureaucrats are putting their houses on the market.
The result?
The Washington, DC, real estate market has seen prices fall by more than 30% in just one week! (Source: https://halturnerradioshow.com/index.php/news-selections/national-news/housing-values-in-washington-dc-collapse-36-5-in-one-week)
From February 8th through February 14th (inclusive), 14,825 private homes were listed for sale in and around Washington DC. In a 24-hour period, on February 14, five hundred sixteen new residential real estate listings were added to the inventory of homes for sale in Washington, DC.
The sudden increase in housing inventory has seen home prices fall more than 36% in one week!
This is creating another set of problems for many DC homeowners with a mortgage, they are suddenly ‘upside down’ in their properties; owing more on the house than it would bring upon sale.
Egg Shortage Worsens
Egg prices surged more than 15% in January from December, the largest egg price increase in one month since 2015. Bird flu killing millions of egg-laying chickens is primarily to blame.
Year-over-year egg prices surged 55%, according to the US Bureau of Labor Statistics. The jump pushed inflation up to the highest level since August of 2023. (Source: https://finance.yahoo.com/news/eggs-soar-15-month-grocery-154450834.html)
The average price of a dozen eggs nationally as of February 7 was $7.34, according to the US Department of Agriculture. That’s a 10% increase in just one week!
Waffle House, in adjusting surging egg prices, added a temporary per-egg surcharge of 50 cents. Many grocery stores are limiting purchases of eggs. Many grocery stores, including Whole Foods in Lincoln Park, Illinois, near Chicago, were out of all egg inventory.
United Egg Producers, a coalition of egg farmers, stated that more than 100 million egg-laying hens have been lost since bird flu began.
This week’s RLA radio program features an interview that I did with Dr. Robert McHugh of TechnicalIndicatorIndex.com. I get Bob’s forecast for the US economy and financial markets.
The interview is posted and available now by clicking on the "Podcast" tab at the top of this page.
"Friends may come and go, but enemies accumulate.”
-Thomas Jones
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