Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

THE CITIGROUP ECONOMIC SURPRISE INDEX SENDS A WARNING

It’s often useful to compare market expectations to reality.  After all, a market is not built solely on fundamental realities, but how broadly those realities are expected by investors.  When expectations are high there is the likelihood for disappointment.  When expectations are low there is a potential for upside surprise.  This has been most apparent in my Expectation Ratio which has been consistent with a dramatically improving earnings environment since mid 2009.

More recently, we’ve seen an increasing level of bullishness in sentiment surveys and analyst’s expectations.  CitiGroup tracks an economic surprise index that shows how recent economic reports have been trending versus expectations.  Throughout the last 5 years this index has tended to show a high correlation with near-term market peaks.

I calculated 1 and 2 month market returns from the initial reading of 55 – an arbitrary, but high historical data point in the series.  Going back 5 years the total returns on a one and two month basis are as follows:

1 month:  – 3.98%

2 months: -4.28%

The above data points are heavily skewed by the market crash of 2008, however, the risk/reward proves to be little improved when removing the crash data.  Markets still tend to trade lower to sideways:

1 month: -1.8%

2 months: 0.28%

Given the very high levels of bullishness and analyst expectations of economic data, we could finally be due for an equity market correction.  That’s assuming that the Bernanke Put isn’t so firmly entrenched that it overrides any and all historically reliable data….

Source: Bloomberg

Comments are closed.