The S&P 500 has made a correction and its bounce stalled at the 38.2% retracement.

Here’s my long-term, medium-term, and short-term outlook for the U.S. stock market

The economy’s fundamentals determine the stock market’s medium-long term outlook. Technicals determine the stock market’s short-medium term outlook. Here’s why:

We focus on the medium and long-term. Let’s go from the long-term, to the medium term, to the short term.

Long Term

Our long-term outlook remains bullish. This bull market will probably last until Q2 2019, after which a bear market will ensue.

The economy and the stock market move in the same direction in the long term. Hence, leading economic indicators are also long-term leading stock market indicators.

Leading indicators are starting to show some signs of deterioration, but not enough for the bull market to peak (which means that September 2018 likely wasn’t the bull market’s top). The usual chain of events looks like this:

Let’s look at the data.

Capital Spending

Capital Spending is starting to decrease, and will most likely continue to decrease over the next several quarters as CEO’s economic outlook worsens.

Source: Yardeni

Consumer Confidence

Consumer Confidence is extremely high. While this isn’t immediately bearish for the stock market, Consumer Confidence is usually this high during the last year of a bull market.

This suggests that the bull market doesn’t have a lot of room left.