Comfortably Numb

Comfortably numb.  Markets closed mixed yesterday as virus fears abated and mixed earnings trickled in.  A weak economic indicator was largely ignored and stocks gave up earlier losses.




It’s just a number.  Or is it?  The Conference Board is a non-government think tank founded in 1916 and has been a household name in the financial community ever since.  They are most notable for their economic numbers Consumer Confidence and Leading Economic Index (LEI).  Consumer Confidence needs no introduction and my regular readers know of my obsession with consumers. The LEI is a bit different and warrants a quick look.  The index tracks ten economic indicators which are thought to be predictive of future economic health.  In other words, the index tends to move before the economy.  Some examples of the tracked factors are: Building Permits, the yield curve, weekly initial jobless claims, and consumer expectation for business conditions.  Just looking at those examples, you can get an idea of just how the index works.  Moves in building permits give us a good idea of the health of housing in the future.  I covered that in a note earlier this week.  The yield curve shape, which the market was obsessed with last year is also a good predictor of recessions.  Clearly, employment is a factor in economic health.  More people filing for unemployment insurance means layoffs are on the increase. That leads us to consumer confidence.  Consumers who are fearful of job loss are less confident and less confidence leads to less spending.  So you can see from that small sample of indicators we can get a good idea of how the economy might be doing in the near future. Interestingly the LEI also tracks stock market performance.  There is a lot of debate on whether the stock market predicts economic growth.  Some portfolio managers will say the stock market is the economy.  I am not so sure about that, but I am sure that when stocks are going up, consumers tend to be more confident, even if they may not own them.  Not to be redundant, but confidence is good.  Anyway, the Conference Board saves you from having to watch and track all of those types of numbers and creates an index. To get an idea of how predictive the index is we can look at the last recession, AKA The Great Recession.  It lasted from December 2007 through June 2009.  The Leading Index peaked in March 2006 and had already fallen by -6.28% before the recession started.  Once the recession started the index went straight  down and posted its first increase from March to June of 2009, which was just prior to the end of the recession.  Once the recession ended, the index had a pretty good run except for 2015 which saw it flatten out until mid-2016, at which time it took off once again until September 2018 from which the index has gone sideways ever since.  The conference board released its latest LEI yesterday which showed a month over month decrease of -0.3%, worse than expected.  The index is -0.71% off of its peak last summer.





Stocks erased larger morning losses as the WHO announced that it was not ready to call the Coronavirus a global health crisis… yet.  The S&P500 advanced by +0.11%, the Dow Jones Industrial Average slipped by -0.09%, the Russell 2000 inched up by +0.3%, and the NASDAQ Composite Index traded up by +0.20%.  Bonds went up and the 10-year treasury yield fell by -3 basis points to 1.73%.




– IHS Markit Manufacturing PMI is expected to come in at 52.4 same as the prior reading.

– The more important Services PMI is predicted to be at 53.0 up slightly from last month’s 52.8.

– This morning Air Products and American Express beat expectations.

– Next week we will get more housing numbers, Durable Goods Orders, GDP, PCE deflator, Consumer Confidence, some regional Fed indicators, and the University of Michigan Sentiment.  The Fed will hold its FOMC meeting next week and while rates are expected to remain unchanged, investors will carefully watch the post-announcement press conference. Lots more corporate earnings are in store for next week as well. Check back on Monday for all the details.




daily chartbook 2020-01-24

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