The stock market fundamentals are very weak

The S&P 500 and Dow are under their bearish trend lines that began on November 3rd. The Nasdaq Composite is the weakest of the three major indexes and is far below its bearish trend line that began on December 3rd. The Nasdaq is filled with growth stocks. Its weakness is an indication of the weakness in the U.S. economy and of the stock market.

The most recent GAAP earnings for the S&P 500 are less than 0.5% above the GAAP earnings before the last recession in 2007. The labor participation rate, 62.9% as of February, is close to the lowest since the late 1970’s – before the huge influx of women into the workforce. According to the Fed, inventories are 140% of sales and this ratio has been steadily increasing since 2011. We haven’t seen this ratio this high since the last recession. So, we have a very bad labor market and our biggest companies are just barely keeping their heads above water.

The market has been bullish, on a short-term basis, since the mid February low. This recent action shows that there is still an abundance of demand. However, the price of both the Dow and S&P 500 so near their bearish trend lines, suggests a soon-to-come increase in supply i.e., selling pressure). Since last July, the S&P has had a series of lower highs and lower lows. It is much more likely that the stock market will fall than break above the bearish trend line and through all the resistance above it.

Here’s the chart of the S&P 500:


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