Buy at the highs, labor market figures in the USA

Chart of the week

The chart shows which investments are worthwhile, depending on economic growth and inflation trends.
Why this is important
When investing, you are often influenced by current stock market sentiment. This tempts you to make investments that almost all end in losses. It therefore makes sense to have a long-term investment model and to stick to this system when making investments.

The chart above shows an example of such an investment model. Simple and focusing on two influencing factors, it derives clear investment opportunities.

We are currently in phase 3, i.e. bottom left. This means that the best investment opportunities are currently in value stocks and government bonds. However, we are still advising against small caps. If we enter a recession, shares in small companies will suffer particularly badly.

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Labor market figures in the USA
Last week, the number of new jobs created in the USA surprised the markets positively:

More jobs have been created, but not too many new jobs to prompt the central bank to raise interest rates. The chart shows in blue the average of newly created jobs over the last 10 years, in green the newly created jobs in 2022 and in red those of 2023.

The overall picture that the chart shows is that the economy is losing momentum, with fewer new jobs created in 2023 than in 2022, but that the economy is still growing and the central bank's braking measures are working, but only very weakly.

The chart shows the sectors in which the new jobs were created. 80% of the new jobs were created by the administration and in the health and social sector. This puts the figures into perspective somewhat. The rest of the economy has contributed little to the growth. This is currently positive, as it shows that the economy has slowed down in many sectors.

The chart shows the high correlation for over 20 years between the S&P 500 share index and the number of job vacancies. If the number of job vacancies falls, this is a sign that the economy is performing less well and companies are making less turnover and profit. This is directly related to the fact that the stock market is driven by very few stocks.

The chart shows that most analysts expect higher corporate profits (blue) and sales (green) in 2024 than in 2023. As long as growth remains positive, there will be no major correction on the stock markets.

The chart shows the number of companies that are on the verge of bankruptcy and can undertake a court-supervised reorganization of their finances under Chapter 11 of the US Bankruptcy Code.

Filings are rising sharply, which shows that the economy is cooling down. However, the current figures are not high enough to be worrying.

The chart shows the euphoric mood among private investors. The level is calculated weekly by the AAII (Association of Individual Investors). Sentiment has improved rapidly and is already at the same level as in mid-2021. It can be assumed that the markets will not continue to rise so quickly and that prices could consolidate in the coming weeks.

Buy at the highs
If the stock markets continue to rise, they will reach new all-time highs in the coming weeks.

Many investors will then stop buying. The conventional wisdom is that the market has already run at new all-time highs.

The chart shows that this opinion is wrong. The light green bar shows the return that an investor will have over the next 1, 3 and 5 years if he enters the market on a normal trading day. The dark green bar shows the return that an investor has if he enters at a price that is an all-time high.

The conclusion: You should get in at new all-time highs.
Another point in favour of a rising stock market is the presidential cycle:

The chart shows the performance of the S&P 500 in the various years of a president's four-year term until he is re-elected. The first two years are usually the worst on the stock markets. This can be explained by the fact that a new president introduces new laws, which often lead to higher costs for companies. In years 3 and 4 of the presidency, he is already working on his re-election, which has a positive effect on stock market returns.

We are currently well in line with the long-term average. President Biden's fourth year could be positive for the stock market.