Looks Like Recession Started Last Fall
Sales of heavy weight trucks (the blue line) peaked in September 2019. It previously peaked in the autumn of 2006, 1999, and 1988.
At roughly the same time, the 10 year / 2 year (red line) and 10 year / 3 month (green line) yield curves inverted, just as they did in 2007, 2000, and 1989.
Some other notable economic series:
- Total Private Construction Spending: Lodging peaked last June, previously in Mar 2000 and Oct 1998.
- Total Private Construction Spending: Amusement and recreation peaked September 2018, previously in May 2008 and April 1999.
- Industrial Production: Business Equipment peaked a year ago, previously in March 2008 and September 2000.
- Retail Sales: Furniture and Home Furnishings Stores is an interesting one because it peaks before other ones do. Dec 2017 this time, previously Dec 2005 and Dec 1999. (December is always the strongest month for this category. This one actually never exceeded the past cycle peak.)
- Rail Freight Intermodal Traffic peaked in fall 2018, previously in fall 2006 and 2000.
[T]he market should equal replacement cost, which means the correlation between profit margins and P/Es should be −1. Or, putting it in simpler terms, if you had a huge profit margin for the whole economy, capitalism being what it is, you would want to multiply it by a low P/E because you know high returns will suck in competition, more capital, and bid down the returns (conversely at the low end). But what actually happens? Instead of having a correlation of −1, our research shows it has a correlation of +.32. The market can’t even get the sign right! High profit margins receive high P/Es and vice versa, and the correlation is much greater than +.32 at the peaks and the troughs. Right at the peak in 1929, we had record profit margins and record P/Es. In 1965, there were new record profit margins and record P/Es (21 times). Now, think about 2000. We had a new high in stated profit margins and decided to multiply it by 35 times earnings, a level so much higher than anything that had preceded it. In complete contrast, in 1982 we had half-normal profits times half-normal P/Es (8 times). I mean, give me a break. We were getting nearly one-third of replacement cost at the low, and almost three times replacement cost at the high in 2000. This double counting is, for me, the great driver of market volatility and, basically, it makes no sense.The S&P 500 earnings peak last cycle was in 2006 at 87.72 and the trough was 2008 at 49.51, a 44 percent decline. The index fell 54%, so most of the decline can be attributed to the earnings decrease and the residual would be attributable to multiple contraction.
What I notice right now is that investors buying the dip are excited because things seem cheaper than they have in a while... but they are looking at TTM earnings because those are all that is available.
It takes a long time for economic activity (and corporate profits) to come back after a recession. After the 2008 recession, total vehicle sales did not return to the 2005 peak for a decade. Same with total private construction spending, it took a decade to recover.
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https://www.barchart.com/stocks/quotes/NICK/technical-chart?plot=BAR&volume=total&data=MO&density=X&pricesOn=1&asPctChange=0&logscale=0&sym=NICK&grid=1&height=500&studyheight=100
Nicholas Financial, Inc. operates as a specialized consumer finance company in the United States. The company engages in acquiring and servicing automobile finance installment contracts for the purchase of new and used automobiles and light trucks.
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