The United States economy has proven to be remarkably strong, growing at its fastest rate in two years. It is sustained consumer spending that drives this economic growth. Wealthier Americans, especially, are pouring their own money into schools, hospitals and other infrastructure. Indeed, as consumer confidence builds, the resulting response of the financial markets is cheerful, with some eye-popping gains in commodity prices, including copper.
Against this backdrop of tech-driven growth, the S&P 500 stock index has been a fundamental gauge of overall market performance. The index uses seven important market indicators to measure the level of bullish or bearish investor sentiment and the broader health of the market. Another major indicator, among many others, is the Fear & Greed Index. It gives each measure the same level of importance, producing a 0-100 score. A score near 100 indicates that the market is at an extreme level of greed. Conversely, a score close to 0 indicates that investors are subject to peak level of fear.
The indicators used by the S&P 500 include stock price strength, which assesses the performance of individual stocks relative to their historical prices. Additionally, the index closely monitors net new 52-week highs and lows on the New York Stock Exchange (NYSE), which provides insight into market momentum. This metric evaluates how many stocks are hitting new highs versus those reaching new lows, offering a snapshot of investor activity.
With the S&P 500, another key piece to analyze is the return premium of stocks over bonds. This comparison occurs over a 20 business day window. This apples-to-apples comparison gives investors essential context to best compare the risk-reward balance between equities and fixed-income securities. Market momentum is taken into account, with the S&P 500 measured against its 125-day moving average, to detect positive and negative trends.
The index uses a ratio of calls to puts to judge if the market sentiment is bearish or bullish. Specifically, a ratio higher than 1 often means investors are feeling bearish, sending a warning sign to market participants. A ratio below 1 indicates a bullish environment and more investor confidence. The market is filled with thousands of different securities to invest in. Investors should look at where the current stock market level stands against historical levels from months past.
Generally speaking, these indicators are an encouraging sign for the US economy. At the same time, the spike in copper prices underscores demand for commodities. Copper is popularly considered to be a real-time leading economic indicator. Lately, its prices have soared as a result of higher industrial activity and robust demand from construction. Related to this increase in commodity prices has been a broader economic recovery, one that has been filled with optimism regarding future growth prospects.
Businesses are investing—consumer spending is picking up and commodity prices are rebounding. These are all positive market indicators that point to the US economy being on a solid trajectory. The biggest factor behind this momentum is something we can control — wealthy Americans’ willingness to keep spending, providing a self-reinforcing economic climate that’s great for growth.