Stocks Outlook - Wednesday, Nov. 7

Thoughts

1. Net earnings revisions are still positive. Bullish for stocks this year, but will turn bearish in mid-2019
2. ISM services is still trending higher. Bullish for stocks.
3. JOLTS is still trending higher. Bullish for stocks.

1 am: Net earnings revisions are still positive. Bullish for stocks this year, but will turn bearish in mid-2019

The S&P 500’s net earnings revisions are still positive.

The S&P 500’s Net Earnings Revisions turns negative before economic recessions and equity bear markets begin. During economic expansions, it has shown mixed performances because analysts tend to downgrade their earnings expectations as the year goes on. That’s why negative Net Earnings Revisions is a necessary but not sufficient requirement for equities bear markets and economic recessions.

Net Earnings Revisions is far from negative right now. A bear market is not imminent. However, you can see that this data is trending downwards. It will likely turn negative in Q2-Q3 2019

1 am: ISM services is still trending higher. Bullish for stocks

Although the latest reading for ISM services fell a little, ISM services is still trending higher.

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This suggests that the bull market’s top is not in. ISM services had been trending downwards before the September 2000 and October 2007 bull market tops.

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1 am: JOLTS is still trending higher. Bullish for stocks.

The latest reading for JOLTS fell a little from its previous reading. But more importantly, JOLTS is still trending higher.

*JOLTS = job openings

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This confirms the medium-long term bullish sign in Initial and Continued Claims. JOLTS is a leading indicator for the stock market and economy. This chart demonstrates the positive correlation between JOLTS and the S&P 500. An uptrend in JOLTS = an uptrend in the S&P 500.

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Outlook

Here’s what I think will happen based on our discretionary outlook:

1. The S&P 500 has less than 1 year left in this bull market (bull market top sometime in 2019).
2. The recent decline is just a correction in a bull market. The medium-term direction is still bullish(i.e. trend for the next 6-9 months)