Financial risks are rising in the US! - Part 3

Let's look at some data to corroborate our prognosis for the impending recession and financial crisis.

Before we embark on the chart interpretations, we need to know one of the valuation tools (see formula below) first.

Formula:

Price = Price Earnings Ratio (PER) x Earnings Per Share (EPS)

The PER has been trending lower in 2022 but the EPS has not reacted much in 2022.  The above chart is showing that EPS downgrades will happen soon and these downgrades will cause the stock valuations (prices) to fall further.

Why is the EPS falling soon?

Well, this is because of the declines in economic output caused by the bleak economic outlook.

The NFIB survey is showing that the percentage of firms expecting economic improvement has fallen to decades low.  In short, the bearish sentiment has reached a record high.

The bearish sentiment is corroborated by the declines in the economic output composite index (Eoci) below.  The Eoci will be entering the negative territory soon which indicates a recession (as represented by a shaded region).

How reliable is the Eoci?  Well, the Eoci has a high correlation to the S&P 500 and this will indicate an impending EPS downgrade soon.

The Citi economic surprise index (CESI) also indicates a bleak economic performance (Negative region).  When the CESI is positive, it means that the real GDP outperforms analysts' forecast and vice versa.

Last but not least, the real manufacturing and trade industries sales chart (% change y-o-y) is showing that the US economy is encountering a recession.  The chart is always in negative territory when a recession happens as indicated by a shaded region.

We had already projected on 1 May 2022 that the US would be in a recession.

http://sg-stock.blogspot.com/2022/05/will-us-be-heading-for-soft-or-hard.html