Consider these three economic metrics: (1) Overall Market Value; (2) Consumer Confidence; and (3) Corporate Profit Margins. The historical charts below show the ups and downs in each over many decades. Please give your thoughtful consideration to each chart.
The current 10-year long bull market has lasted longer than most. We cannot know when we will experience another bear market, but each of these three metrics tend to revert-to-the-mean when they reach high and low extremes. Since all three metrics are now very near all-time highs, it is likely that the best we can expect for the rest of 2019 would be a sideways market. But we should also be prepared for the next bear market, which could begin at any time now. Fortunately, a disciplined Covered Calls investing process enables us to substantially outperform the overall stock market in either sideways or bearish markets.
As always, please write me (see right sidebar for email address) if you have any thoughts or questions about this post, including the 3 charts shown below.
Overall Market Value -- Warren Buffett's favorite indicator is Total Stock Market-to-GDP Ratio, which is very close to an all-time high.
2. Consumer Confidence -- Near a 50-year high (only higher during the Tech Bubble of 1999).
3. Corporate Profit Margins -- This chart shows that when hourly earnings have been rising (inverted on the chart below), corporate profit margins will invariably decline (with a 2-Year lag).
