Last month, we examined the relationship between the S&P 500 and the Manheim Index of Used Car Values. The Manheim Index is the de facto standard for determining the prices of used cars and is closely correlated with the S&P 500, meaning it can be viewed as a barometer of where the market is headed (to an extent of course).
Today, the Manheim Index posted its fifty consecutive month-over-month decline in August, falling 0.4% vs. July. On a year-over-year basis, the index is down 2.4%, which is an improvement vs. the July year-over-year decline of 3.7%. Suffice to say, the consecutive declines in the Manheim Index indicate that the S&P 500 will continue to fall as growth slows and the economy struggles to recover. We expect that the index will continue to decline going forward, albeit at a slower rate.
Of course, today’s announcement of QE3 by the Federal Reserve may change things in the short-term, but we’re confident that the rally will be short lived and that the market will post a correction soon enough.