Two critical US economic indicators - labour market conditions and investment spending - are suggesting the US equity market is looking tired

John Robertson

PortfolioDirect

Two critical US economic indicators - labour market conditions and investment spending - are suggesting the US equity market is looking tired. Corporate profits, on the other hand, are suggesting far more robust conditions. The corporate profit measure shown in the chart is from the Department of Commerce and not, consequently, confined to S&P 500 earnings. In the last two market cycles, the downturn in corporate profits has led the downturn in the market (the blue line) by several quarters. The economy wide measure of profitability contained in the official statistics highlights clearly the extent to which markets were running ahead of the underlying economics around 2000. There is little in the numbers to suggest anything similar happening at the present time. Against that background, equity prices should still have some latitude to move ahead.


John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

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