The stock market’s fundamentals are still deteriorating

All three stock indexes are below the bearish trend line drawn from the early November and early December highs. The Dow and S&P 500 have moved up to touch this bearish trend line while the Nasdaq Composite is well below. This fact, that the Nasdaq lags behind is another warning of trouble ahead; the stock market performs much better when the Nasdaq leads as it contains so many growth stocks.

The stock market’s fundamentals continue to deteriorate. Inventories continue to expand while sales sink. This ratio is reminiscent of the beginning of the 2007 recession. David Stockman, at his has produced a chart showing the S&P 500 together with stock buybacks in the S&P 500 since 2010. These two lines are are very close together showing that gains in the stock market over the last few years are based on nothing. Capital Expenditures are off 7% since September 2014. Exports have been plunging since last year in Japan (-13%), South Korea (-20%) and in China (-25%). The worldwide deflation with accompanying defaults and bankruptcies is starting to pick up steam. What does this say for the stock market?

Here’s the graph of the Nasdaq Composite:

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