Fixed Private Investment, SPX and Corporate Profits After Tax
This chart displays FRED data available on the US federal reserve's website:
s3.amazonaws.com/tra...shots/s/SMbTcm9B.png
Notes: I made this in the Divergence Set-Ups chart in Tradingview.
The FED's website updates the information weeks faster than Tradingview. All items in quotes are from Forecasting US Real Private Residential Fixed Investment Using a Large
Number of Predictors published as a working paper series in the department of economics of the University of Connecticut: web2.uconn.edu/econo.../working/2014-10.pdf
Fixed Private Investment (FPI):
(1) "It leads US business cycles and proves useful in forecasting GDP"
(2) "Residential fixed investment to GDP turns down (up) prior to recessions (recoveries), providing a leading indicator to the business cycle."
(3) "residential investment historically contributes only about 5 percent of US GDP, it makes large contributions to output growth in recoveries (Lunsford, 2013)."
(4) "residential investment provides the source of economic growth going forward"
(5) "declines in residential investment also typically proceed recessions (Figure 1 and Leamer, 2007)"
Fixed Private Investment (FPI) is "residential investment that includes new construction, expenditures on maintenance and home improvement, equipment purchased for use in residential structures, and brokerage commissions. (Krainer, 2006)"
"The dynamics of residential investment plays a critical role in mortgage lending, portfolio investment decisions, and economic growth. Long-term investors consider residential property because the income stream from housing links to wage growth and can offer investors a better hedge against their liabilities than commercial property,which more closely links to the slower growing retail price growth series and other property market indicators (Daly, 2008)."
If you build it they will come:
"...housing construction can function as a locomotive, stimulating growth in other sectors, particularly finance, insurance, real estate, certain services, and segments of retail trade (Browne, 2000). The housing sector, in general, provides an important channel through which monetary policy affects the economy. In addition, the housing sector is a leading indicator of aggregate demand (Demers, 2005). Understanding the evolution of this sector enables forward-looking central banks to predict more accurately housing expenditure."
"Forecasting US residential investment helps to identify business cycle turning points":
"Residential investment depends on supply and demand factors" because "residential investment measures the quantity of new housing supplied to the economy and, in the long run, it should satisfy the overall demand for new housing."
Market Quarterly Buy signals:
The published paper attempts to predict the FPI, but I am looking at quarterly turning points that confirms entry into quarterly market bottoms of the S&P 500 Index.
(1) When Fixed Private Investment (FPI) begins to slope or curve back up slightly from a market correction, bear market or consolidation, this is a quarterly buy signal and is good for at least two quarters ahead.
(2) For further study, I will look into the Residential fixed investment to GDP ratio (FRED: FPI/FRED:GDP) to see if that when it turns down (up) prior to recessions (recoveries), it not only provides a leading indicator to the business cycle, but a stock market buy signal for the S&P 500 Index.
UPDATE:
Residential fixed investment to GDP ratio has been added, and it shows after a recession (or a large correction that weakened the FPI) whether or not FPI is outpacing GDP, which is a sign that the S&P 500 will have a strong quarterly bull market and sustained trend for many quarters.
s3.amazonaws.com/tra...shots/s/SMbTcm9B.png
Notes: I made this in the Divergence Set-Ups chart in Tradingview.
The FED's website updates the information weeks faster than Tradingview. All items in quotes are from Forecasting US Real Private Residential Fixed Investment Using a Large
Number of Predictors published as a working paper series in the department of economics of the University of Connecticut: web2.uconn.edu/econo.../working/2014-10.pdf
Fixed Private Investment (FPI):
(1) "It leads US business cycles and proves useful in forecasting GDP"
(2) "Residential fixed investment to GDP turns down (up) prior to recessions (recoveries), providing a leading indicator to the business cycle."
(3) "residential investment historically contributes only about 5 percent of US GDP, it makes large contributions to output growth in recoveries (Lunsford, 2013)."
(4) "residential investment provides the source of economic growth going forward"
(5) "declines in residential investment also typically proceed recessions (Figure 1 and Leamer, 2007)"
Fixed Private Investment (FPI) is "residential investment that includes new construction, expenditures on maintenance and home improvement, equipment purchased for use in residential structures, and brokerage commissions. (Krainer, 2006)"
"The dynamics of residential investment plays a critical role in mortgage lending, portfolio investment decisions, and economic growth. Long-term investors consider residential property because the income stream from housing links to wage growth and can offer investors a better hedge against their liabilities than commercial property,which more closely links to the slower growing retail price growth series and other property market indicators (Daly, 2008)."
If you build it they will come:
"...housing construction can function as a locomotive, stimulating growth in other sectors, particularly finance, insurance, real estate, certain services, and segments of retail trade (Browne, 2000). The housing sector, in general, provides an important channel through which monetary policy affects the economy. In addition, the housing sector is a leading indicator of aggregate demand (Demers, 2005). Understanding the evolution of this sector enables forward-looking central banks to predict more accurately housing expenditure."
"Forecasting US residential investment helps to identify business cycle turning points":
"Residential investment depends on supply and demand factors" because "residential investment measures the quantity of new housing supplied to the economy and, in the long run, it should satisfy the overall demand for new housing."
Market Quarterly Buy signals:
The published paper attempts to predict the FPI, but I am looking at quarterly turning points that confirms entry into quarterly market bottoms of the S&P 500 Index.
(1) When Fixed Private Investment (FPI) begins to slope or curve back up slightly from a market correction, bear market or consolidation, this is a quarterly buy signal and is good for at least two quarters ahead.
(2) For further study, I will look into the Residential fixed investment to GDP ratio (FRED: FPI/FRED:GDP) to see if that when it turns down (up) prior to recessions (recoveries), it not only provides a leading indicator to the business cycle, but a stock market buy signal for the S&P 500 Index.
UPDATE:
Residential fixed investment to GDP ratio has been added, and it shows after a recession (or a large correction that weakened the FPI) whether or not FPI is outpacing GDP, which is a sign that the S&P 500 will have a strong quarterly bull market and sustained trend for many quarters.
Capturing the swings of the stock market & currency market. It's a dirty job and equity/currency traders must do it.
