Top 3 fundamental indicators: 1) Initial Claims (Employment more broadly). 2) Consumer Spending (Consumer+Business Spending more broadly). 3) Inflation (Money supply and monetary policy more broadly).
For years now people have been predicting a recession or a market correction but it hasn't happened and it will not happen. People have mentioned high oil prices, housing market collapse, $18 nat. gas last winter, dollar collapse, stagflation, etc. etc. But the bottom line is that as long as employment holds firm - nothing matters. You have to be crazy to sell as a fund manager as long as employment is strong. Because if you sell predicting a recession and there is none then the market has gotten way ahead of you without you and now you have to chase it. One way to lose a lot of AUM is by under performing the SPX - its up 15% for the year and you're only up half that much because you foolishly bet on recession in the face of strong employment and now you have to play 'catch up' by buying the highs so you don't missout on any more upside.
"Because if you sell predicting a recession and there is none then the market has gotten way ahead of you without you and now you have to chase it." My question is what if your a fund manager, you didnt sell and there is a recession... There are quite a few classic signs stating that there is going to be a recession. The most telling one for myself is the new car sales statistics. A fund manager has millions, sometimes billions, of dollars under management. There are quite a few fund managers at Fidelity who lost billions of dollars making Amaranth look tiny. One notable Fidelity fund manager had lost over 20 billion dollars for his customers in the years 2000-2001. I can imagine an individual with a million or less in an account betting that there will be no recession and not selling. However, if your a fund manager with millions or billions under management, you have a responsibility to your investors to do the right thing. If you see classic signals of a recession, then you have to bring the cash into safe harbor. You cant just gamble the money as if this were a casino. You have to look at the signs. You cant just say "Its going to be different this time." It usually is never different. Currently, the market is being bid up as if 2007 is going to be a banner year for growth. Unfortunately, the growth for next year will pale in comparison to 2004, 2005 and 2006. Even if there is no recession, you are going to have a great pullback on your hands at some point in 2007. Many money managers are switching over to mid-large value names. The most telling sign is hedge funds starting to transfer their debt through bonds and not utilizing a bank.
I guess the fascination with predicting is in that people think its a low risk strategy. For example you sell a market top thinking it is THE TOP, and if it isn't you can always get out with a small loss or with a scratch. This is true. But most often you'll get stopped out a lot because i lot of people feel the same way and their stops getting hit creates even more demand at even higher prices. The price you pay for using a tight stop is low% accuracy. Its like death by a 1000 cuts. Now if you wait for a more significant sell signal - you have to use a larger stop but your % accuracy improves considerably. Free lunch, there is not - risk you pay for return, always there is.
we are into the time of year now that people will hold off selling at least until jan 1. people have a lot of profits this year and if you can sell after jan 1 you can delay taxes for 16 months.
So if this market levitates going into 2007. Do you think the rush for the exits will occur off the bat or later in the quarter?