Should We Invest Now or Wait for a Stock Market Crash?

Should We Invest Now or Wait for a Stock Market Crash?

hi I’m Jimmy in this video we’re gonna
walk through a quick review of where the u.s. economy stands we’re using
different economic indicators to see if we can objectively gauge where the US
economy stands today the goal is to see if we can get a enough of a big-picture
view of the overall economy trying to help us determine should we invest now
or wait for the stock market to crash and ideally this will help us make a
better investment decision and get us closer to our goal of achieving
financial freedom okay so let’s jump in so I’m gonna try
to use the same economic indicators as we did last month so we can get a better
way to compare one analysis to another so if you know of any good leading
economic indicators that I don’t review in this video please put them in the
comments below so I could try to incorporate them into
the next video okay so first up we’ve got the S&P 500 now I’m not gonna use
this on our economic scorecard I just wanted to illustrate how well the stock
market’s been doing right recently and I also want to point out
this hesitation here in the past month or two and as we could guess this is
largely due to the reaction from the coronavirus now I think it’s worth
noting and probably obvious that the coronavirus has had a bigger impact on
the Chinese stock market this is the Shanghai Stock Exchange index and
clearly they’ve had a big dip recently although it does look like they’ve had a
decent bounce off of the bottom so clearly the coronavirus is something
we’re gonna want to watch as it’s always possible that some sort of Black Swan
event like this could be the reason that the first world economic Domino were to
start falling it could be the initial cause of the falling of all of the
different major economies so I think it’s important that we acknowledge that
this is out there this is a big potential negative so this is something
we’re gonna want to watch the longer this drags out the bigger the potential
problem we could have okay now let’s jump to our first indicator first up we
have the yield curve or more exactly the inverted yield curve so this is the
inverted yield curve this is the yield curve when did inverter just a few weeks
ago at the end of January now we know this yield curve is inverted because the
short-term interest rates are higher than the long-term into
straights in this case we have the three-month is higher than both the
five-year and the ten-year interest rates and this is a bad thing this is a
bad sign for the overall economy this is clearly gonna be a point for the Bears
since historically all recessions in the United States have been preceded by an
inverted yield curve and this isn’t the only example of an inversion of the
yield curve that we’ve seen we had a few of them happened last year
so clearly the inverted yield curve is something that is looming over the
United States or the US economy and this could be a bad sign in the
not-too-distant future so we jump over to our economic scorecard well right now
the Bears get one point for the inversion of the yield curve next up we
have manufacturing now this is the is M manufacturing PMI indicator and this has
clearly been a negative point for the Bears since about the second half of
2019 when it was clearly it was this fall that we were watching as you were
watching that fall where you became more wary of it and then in the past couple
months well when the manufacturing index fell
below the 50 level this became a real problem 50 is an important level for
this indicator because anything below 50 implies negative growth in the
manufacturing sector anything above 50 even when it was falling implied that
growth was slowing but it wasn’t negative a total drop below 50 but
clearly we can see that in January the number jumped back above the 50 level
now I don’t want to overreact to this too soon I wouldn’t want to call this a
positive sign because we’ve had one month where it’s been above it but the
fact that there is now again growth in the manufacturing sector could be a good
thing so I think it moe I think it makes the most sense when we switch back to
the scorecard to give this one a neutral point because as of right now I think
it’s too soon to say it’s a positive but at least it stopped falling and not only
did it stop falling the sector started growing again so overall I think we got
to give a neutral point for this one one point for the bull and the Bears this is
gonna be an important one for us to watch over the next few months okay next
up we have two indicators on a way we can track
how late consumers are as far as their payments how late are they with their
payments on some big purchases first we have auto loans so as we can see with
this chart we can see that there’s a larger percentage of people that are 90
days or more late on their auto loans now this indicator is updated quarterly
so December is the last number that we have but the fact that more people are
late on their auto loans is clearly a bad thing and this is gonna be a point
for the Bears then when we switch this chart over to the percentage of people
90 days or more late on their mortgages well much to my surprise this held up a
lot better than I would have expected sure there was a slight uptick in the
past quarter or two but nothing too significant relative to how bad it got
in the wake of the Great Recession so overall when we jump back to the
scorecard well with these two I think it makes sense to give a point to the Bears
for the auto loans clearly that’s a negative sign but for the mortgages I
think it makes sense to give them a point to the Bulls
since mortgages are doing pretty good right now at least people aren’t there
are too late on their mortgages which makes sense you’re more likely to pay
your mortgage than you are your car if you’re running into financial trouble
that’s something you could afford it okay now we’re jumping over to consumer
confidence now consumer confidence has been a point for the Bulls for a while
and if we look at the most recent numbers to January numbers well they
came in right near the highs for the consumer confidence
so overall the fact that consumer confidence is sticking up this high is
likely to be a good sign for consumers in general and maybe if we were to think
about this from the mortgage perspective I guess in hindsight consumer confidence
numbers being good as they have been for a while now well I guess it would make
sense that if more people were being laid on their mortgages then I’m
guessing consumer confidence would fall so these numbers are likely to be tied
to each other so I probably shouldn’t have been surprised that mortgages were
doing okay which explains why consumers broadly speaking are fairly confident
okay so on our scorecard we got a bullish point for the consumer
confidence okay now we’re sliding down to a similar
economic indicator in CEO confidence now much like consumer confidence C
confidence has proven to be a decent economic indicator as far as predicting
what’s to come in the economy and I was torn with this particular chart clearly
relative to the Great Recession it’s looking pretty good but the last time I
did this video I actually gave it a point to the Bears since over the past
year it has been trending lower now if we were to zoom into that part a little
bit well we can see that the January number came out and it’s possible that
CEO confidence it looks to be red at the higher the higher end of that trend
lower but it’s possible it breaks higher but once again I think it makes sense to
stick with a point for the Bears since the fact that conceal confidence seems
to be trending lower over the past year to me would you know it’s it’s it’s a
warning sign something that we should be watching so right now I want to stick
with it up with a point for the Bears but let me know if you would do it
differently okay now we’re jumping over to housing starts clearly this economic
indicator looks good as many new houses seem to be being built and clearly we
saw a spike in this indicator very recently now the theory behind housing
starts being in a good thing for the economy is that more people buy houses
when more people are confident in the overall economy the more people that buy
houses the more houses that they built that’s how you get this number moving
higher so on the scorecard clearly that’s a point for the bolts now when
we’re looking at the scorecard it’s not too far off this month than it was last
month it split about 50/50 right now and I think that’s a fair assessment of the
economy it’s very possible we’re in an election year right now it’s very
possible this thing runs for all of 2020 perhaps we have a pullback in 2021 and
there’s enough warning signs that something could be around the corner
overall I’d say that I’m fairly confident with the economy and I think
it makes sense to continue to invest among our money as consistently as
possible I’m a big fan of dollar cost averaging and I think that if I had a
choice of investing now or weighting well as I’ve said for the past year I
think it continues to make sense to continue to invest albeit defensively I
think it I think there enough warning signs that it makes sense
to stay defensive now I have been asked a few times does this type of economic
analysis really work and just recently I did a video on where I went back to the
Great Recession right at the peak right before the Great Recession happened and
I did this same type of analysis with these very same indicators and I wanted
to see whether or not this would actually work this is what that video
was if you’re curious this could be a good next video watch if you’re curious
what it would have looked like before the Great Recession well we really have
had warning that the S&P was about to tank if you’re curious
there’s a link here there’s a link in the description below and I want to
thank you for stick with me all the way into the video I really appreciate it
I’ll see you in the next video

100 thoughts on “Should We Invest Now or Wait for a Stock Market Crash?

  1. Also Schiller's pe ratio running at circa 32 where the average is 17, Point to the bears. Unemployment rates currently low, point to the bull's..

  2. This formula may be good at predicting a recession, that being said I am skeptical it can predict a correction in the market. For example I think the market is pricing in growth that doesnt exist and wont happen. This wont constitute a recession but maybe a ~10% or 15% drop over a year time.

  3. I am also keeping an eye on the Baltic Dry Index. Its almost like ISM but follows dry global shipments. Its been dropping massively since last few months. Bearish

  4. Jimmy, I really appreciate all the work you put into all your videos. By far the best investing channel on YouTube. Keep up the great work

  5. I think that consumer confidence is not a good economic indicator. Because most consumers are just an average working class people. They are not watching economy closely because they don’t have basic knowledge and understanding about it. Consumers are the last to find out that economy is struggling.

  6. The surge in housing starts is indicative of a late cycle in the housing market. I remember in the early 80s before we had the bust then, and everywhere you looked houses and strip centers were going up. Everyone and his brother get pulled into the euphoria, and even people who have never built houses, start building houses. It's like FOMO in the stock market, except its in the housing market. A lot of the speculation homes that have been built here in Southeast Texas, have been sitting with for sale signs in front of them for quite a while. I saw some of the strip centers built during that period sit vacant for almost 10 years.

    The second point I would add, would be the corporate earnings recession. When you look at the actual earnings of the corporations, they are flat or worse. You have to look beyond the smoke and mirrors or the non-GAAP accounting trickery they use, and look at the GAAP to cut through the bull. In addition to using non-GAAP numbers, corporations have thrown out all the stops on share repurchasing. Between the non-GAAP and share buy back hocus pocus, EPS would not be very nice to look at. But we know that executive bonuses are tied to EPS, so they have to insure their bonuses continue using this trickery. Besides, it keeps the shareholders happy to see the EPS improving, and you don't want to aggravate the shareholders. Related to this is insider selling, which is quite elevated. Insider selling can be a sign of employees just wanting to take some profits, or another possibility, is they know they have plateaued.

    A third thing I would look at, and I believe this to be a canary in a coal mine is the freight indexes. The Baltic, Capesize and Cass freight indexes have all been pretty poor. Surely if the economy is booming, you would need freight shipments to supply that? Well, it's not happening.

    These are just a few. I'm sure others here can think of some more. As a not, I've moved heavily into consumer staples. I see the writing on the wall.

  7. I would have to say this sort of economic analysis is not accurate. Why I say that is because the economy is based on a lie that everything is rock solid. I think that if the major news organizations made people more aware of the Feds activity’s in holding up the economy, it would be more accurate. Being that’s not the case, and they are suppressing that information by not giving it full light; I would have to say that we have to go based on the time will only tell Economic analysis. As I’m writing this Dow is down also the S&P 500, metals are up. So who really knows the future? well, time will only tell.

  8. I think you need to add two very important indicators: inflation and most of all interest rates. If I were to bet on the cause of the next recession, I would say rising inflation, and rising interest rates in response to it. The amount of debt in the economy makes it very interest rate sensitive, so it makes sense to include it as a leading indicator.

  9. Wow horrible advice folks never buy stocks at their highs ! The market is being propped up by the FED and is not only overvalued but just ridiculous

  10. I think the economy party will collapse when the FED takes away the punch bowl, the thing you have to ask is, "when will they stop Quantitative Easing?"

  11. I think i'm going to park my cash on the sidelines and stick to mid-small-micro caps , maybe some ipo's and REITs.

  12. I'm old fashioned and do a 50/50 couch potato portfolio and use employment numbers as an indicator, but you really did some fine work here Jimmy.

  13. Jimmy doesn't include some key indicators. Corporate credit is huge indicator and conditions are not tight, once they started to tighten that could spell impending trouble. Second is the FED stance. The FED is your friend right now, if they start to shift stance on liquidity, that could indicate a reversal. These are shorter term indicators. I don't time the market, position the portfolio to protect it from down turn but invest in those secular long term growth trends that don't care about next week, month, and keep investing. If (when) we go into recession, I will invest even more.

  14. don't forget that companies and businesses are buying up homes and renting them out to people. that's why it is low on the 90+ day delinquencies.

  15. Maybe a correction more than a crash, there were many reasons to have a crash and we are 2years over due for a crash. As long this government keeps printing dollars and China keeps pumping money in the economy to avoid a catastrophic disaster we should expect a correction rather than a crash.

  16. Yield curve is iffy… Also right when we found out about virus too. ISM is just one factor of manufacturing too. We have a global effect we are trying to move past! Be far on auto loan, treading up not down too. Glad U added mortgages to the list. We r confident and ready to run. Btw some people take auto loans because they can and horrible, compared to home loans. We r in a melt up with global factors pressuring onto our economy! Jimmy how do you feel w/o the charts?? Trump or socialism?? Idk about you but let's go economy and truth rather u like Trump he's great for our country. Thank you tho for your analysis

  17. 3 month rates are too short of a time to look at an inverted yield curve. The economy is surging, of course a 3 month bond will be less risky than a 10 year bond. The 2 year rate is significantly above the 10 year.

  18. Jimmy, thank you. How do you invest defensively in 2020? Do you invest in value and income stocks? Or do you mean in utilities and healthcare? What do you mean in invest defensively and will you make a video on this? Thanks again. – First year investor –

  19. I continue to do both. I still invest, defensively now, but am ready for the next downturn as well. Who was it that said, after Black Monday, 1987, 'Time to go shopping, boys'?

  20. To me, and its just an opinion:
    – Manufacturing is a point to the bears still.
    – Consumer confidence and housing stats are highly correlated, it would be cool to have the data of housing prior to 2008 for comparison purposes.
    Same conclusion here, I'm investing in defensive stocks. Thank you for the video, awsome job.

  21. You are the reason i start investing a year ago, thank you Jimmy!
    I'm kinda concern as 2020 has been rough on all countries, yet the indices are going up except for chinese market. Is there any reasoning for it?

  22. There will be no recession or big crash this time, at least in the short term. Just relatively small corrections here and there.
    And what they say “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves” is absolutely true has it has been happening to myself…

  23. How about the adding the Leading Economic Index with an 18 month moving average applied to it. It has been pretty reliable when the index falls below the 18 month MA in indicating a change.

  24. Good video. Frequency, timeliness of data and low revision risk are essential for a real time leading index. You ask if anyone knows of any good leading economic indicators. You should look into weekly jobless claims.

  25. Thanks for the information. This is the best time to invest in honey bees it helps out everything. Imagine if everybody had bees

  26. Another great video! Thanks Jimmy.
    One thing that would be interesting to know is how many time the yield curve inverted before we had a recession.

  27. Should I invest in the market? Answer:

    Yes,No,Yes,No,Yes,No,Yes,No,Yes!…………………………………Sounds like you're hedging your answer.

  28. Great vid Jimmy, another good indicator to get macro market direction is the Baltic Exchange Dry Index….. BDIY, check it out. Cheers.

  29. Advice Today
    Don't Invest, it's too High Right Now!!!

    Market Crash Tomorrow
    Don't Invest, you'll be throwing your money away!!!

    Stonk Graph Day After


  30. You know how the old saying goes,
    The Best time to Invest was 20 years ago, the next best time is NOT TODAY, IT"S TOO HIGH!!

    Oh and if it's crashes then just wait for it to go down further, otherwise you'll be throwing your money away.
    I think i nailed that old saying.

  31. Not every yield curve inversion leads to a recession. I was a bear and lost by not investing last year. Check out talks by Catherine Wood. CEO of ARKK investment

  32. I'm interesting to know, IF the coronavirus has a major impact on China's economy (China with 0 to 1% GDP for 1st 6 months of 2020 for example), how much do you think it will impact the US economy?
    I've seen news about starbucks and McDonald closing in China because of the Coronavirus. I've seen new about disruption to supply outside of China because of China failing to export products (cf. gamesindutry). Can America enter a recession because of China being close to a recession or would it just slow America's economy?

  33. I have been hearing that the massive growth in late 2019 is due to increased lending, not performance, in the hopes that this will result in higher company growth in the future. Is this true? If companies can't deliver on their performance promises, in spite of betting on it, wouldn't that start a recession and a bear market in a couple quarters?

  34. I'd like to suggest looking at consumer credit card debt carried month to month.

    You can't make a mortgage or car payment with credit, but you can with about everything else.

    Assuming a person were to pay for house first with the cash he had, he could pay for utilities, gas, and groceries on credit.

    If money was tight the consumer can carry the balance over. That can slowly build up over time into a crushing amount of debt, and possibly a bankruptcy.

    An increase over time or a spike could suggest a similar story on average across the country.

  35. Even if a crash happens, that'll simply mean stocks will become more discounted than they are today. As Warren Buffet says, when investors get fearful is when you should get greedy. So unless you're within retirement age, you should just keep investing for the long haul. On average a recession/depression lasts 1.5 years before a rebound and you can reap all the rewards of your discounted stock.

  36. Hi Jimmy thanks for your great videos. Have you ever used the Baltic Dry Index as a leading indicator based off of shipping traffic ?

  37. Wouldn't people pay their car payment first…? One because it's cheaper than a mortgage and two they would need transportation to get to work to earn money to pay their monthly mortgage payments. Also thanks for the video. Great job and keep it up.

  38. Consumer confidence is reactive, not predictive. You could almost trade the inverse if you look at it historically. For example in 1999 Consumer confidence was at a historic high, and it was probably one of the best times in history to sell all stocks.

  39. These days, with crazy high market valuations, I am comparing ETF's and mutual funds impact in 2008 specifically March 2008. I took a look at the Vanguard S&P 500 index vs a popular balanced fund like the Wellington (65% Stocks 35% bonds) and the downside difference was about 15%. I guess it comes down to how you would feel in March 2008 talking to someone who owns the Wellington fund being down 22% vs you in the S&P 500 index being down 37%. To put that into perspective, on a million dollar portfolio, you'd be down to $630,000 vs the Wellington holder at $780,000. Neither looks good. I then did the Wellesley which is almost a mirror opposite to the Wellington with 40% stocks and 60% bonds and you would be been down 11% with a balance of $890,000. The issue then becomes the recovery since then which the S&P 500 Index being 100% equities smokes them all. The only way it would be a worse case scenario is if the next bear market had an extremely slow recovery and you were retired and drawing income from your portfolio causing you to sell more shares to maintain the same yearly income in requirement.

  40. Manufactor been trending down for more than a year and got below 50 (very bearish).
    Consumer broken trend going sideways (early bearish signal)
    Creditspread have never been better in my lifespan – super bullish (I am 26 years of age).
    The economy is going down and will continue to do so, but stocks will for sure continue up and inflate this bubble until it pops.
    Liquidity rally I would call this, with no reality of value.
    Great video bro 👍

  41. hi Jimmy, i have a lump sum to invest and is intending to put them into S&P500 etf for long term. As you mentioned, there could be a potential bear market looming and we shld continue to invest defensively…. do u tink its a good idea to park this lump sum into bonds first and adopt the watch and wait strategy first, and enter the market to pick up cheap S&P500 stocks after the market gets corrected?

  42. if it is that easy to predict all the major institutions would have jumped in or pulled out. I don't think indicators will matter much. Looking for black swan events nowadays matters more.

  43. One of the biggest indicators that the economy is good or bad, is the unemployment rate. The rate is currently is 3.6% which is good and the economy has room to still grow, however if it reaches more than 4%, that would be a sign of a recession coming.

  44. I think we will see a pull back soon enough. I'm cautious. I will invest but I'm holding half my account in cash. Right now I'm at about 80 percent cash. I don't trust election years and i don't trust Donald Trump and his tweeting bullshit. It feels like we are living in a authoritarian ruled country with trump and his lobbyist administration. 281 lobbyist in trump's administration smfh

  45. Do you know that Bitcoin Investment/trading can give you up 200% ROI(Return On Investment in this year 2020) I can show you how I'm earning 3% – 10% profit daily and the secret behind it for successful investment. Contact me via carlo1marino @ yahoo. com or Whatsapp me +1 786 453 4422 This is for only serious minded persons.

  46. I'm just getting into investing and was ?ing getting into this market. Thank you for reinforcing and naming my thoughts on this topic. Defensive investing.
    Dig it.

  47. The problem with this analysis is that it ignores Bank and financial system health. The fiat monetary system is on life support! I don't think a recession is going to come from things like a fall in manufacturing, consumer confidence or housing starts: it's going to come from a bank collapse, the freezing of the credit market and all of the fallout from that. This was the cause of Great Recession and as far as I can see, the same risks are still there only magnified 10-fold…

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