Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is questioning whether the recent collapse in lumber prices forecasts a correction in the major U.S. stock market indices.
“Historically, the direction of lumber prices has marched in step with the major U.S. stock market indices,” says economist and lead contributor Michael Lombardi. “If lumber prices are rising, it suggests demand for lumber is increasing, more homes are being built, more construction is happening, and the economy is improving. The opposite is also true; weak demand for lumber is a sign of poor economic growth.”
Lombardi explains that the direction of lumber prices can be considered as a leading indicator of the S&P 500. In fact, the spot price for lumber has followed the broader S&P 500 index for more than the last decade, with one exception: the present time.
“Since the beginning of March 2014, lumber prices have fallen sharply, dropping more than 10%,” he adds. “The S&P 500, on the other hand, has moved in the opposite direction, going up almost six percent. Because this disparity has never happened before, it is a sure sign of growing economic concern.”
“Investors can add the disparity in the direction of lumber prices compared to the direction of the S&P 500 index to the long and increasing list of historical indicators now pointing to a market that is overbought and overpriced,” Lombardi concludes. “Investors who own equities should be wary of the increasing risks of the stock market.”
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Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation, visit www.LombardiPublishing.com.
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