There are only two numbers I care about. The first is the misery index. The way I calculate it is I take the four year inflation rate (annualized) and add it to the current unemployment rate. Currently, the misery index is at 7.24% with an annualized inflation rate of 3.64% and unemployment at 3.6%. When Trump left office, it was 8.28%. If we're to only look at Biden's time in office, it is at 11.8%. Generally, if we are below 10%, we are pretty healthy. If it breaches 10%, that is an indication that we are in the middle of a rough economic period. Depending on your scope, our time since January 2021 has not been good, and there is no way to varnish that.
Several years ago, Professor Glenn Tanner developed the Rule of 20. It is used to determine whether the market is overvalued or not. The rule adds the current average p/e ratio of the S&P 500 and the current inflation rate. A value greater than 20 indicates a stronger likelihood of downside deviation. Our current R20 value is 30.88 with a current p/e of 22.58 and an inflation rate of 8.3%. As a captain of the obvious, this volatility may not be over, yet.
Invest accordingly, and focus on value and quality. Of the 12 companies that passed my Large Cap Core screen this time last year, there are only four that have made money: Regeneron, Tyson Food, Vertex Pharmaceuticals, and Walmart. Today, I have 41 passing companies, which tells me there is some value to be found.
Good luck out there.
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