The Leading Economic Index® (LEI) is the reason many Bulls argue that
the current downturn is just a correction and not the beginning of another
major leg down.
The Conference Board (http://www.conference-board.org/data/bcicountry.cfm?cid=1)
publishes the LEI. It gives an indication of the future of
the business cycle.
An excerpt from the
latest U.S. LEI press release follows: “(The
LEI)...increased 0.5 percent in July to 115.8 (2004 = 100), following a 0.3
percent increase in June, and a 0.7 percent increase in May. The largest
positive contributions came from money supply, the interest rate spread, and average
weekly initial claims for unemployment insurance (inverted).”
Ataman Ozyildirim, economist at The Conference Board, said, “The
U.S. LEI continued to increase in July. However, with the exception of the
money supply and interest rate components, other leading indicators show
greater weakness – consistent with increasing concerns about the health of the
economic expansion. Despite rising volatility, the leading indicators still
suggest economic activity should be slowly expanding through the end of the
year.”
Some cautions that I would add are:
(1) The latest LEI is based on July data and was released 18
August, so there is some lag time, even though the LEI is designed to be
predictive of future conditions.
(2) Two of the largest contributors (money supply, and interest
rate spread) don’t look like strong indicators to me.
(3) We already know that employment has weakened based on the
latest Dept of Labor stats that came in after this press release. The LEI looks at future hiring by tracking data
such as want-ads so it will be interesting to see how the next LEI looks regarding
employment .
I am not an economist, and my interpretation of economic data
should always be suspect. Regardless, we’ll have to wait about a week to see
the latest LEI numbers. The next LEI will be watched by many.
If the numbers are deteriorating, that may spark some serious
downward pressure on stock prices since those who are still Bullish may have to
re-think their positions.
The
S&P 500 was up 0.9% today,Tuesday.
The
Navigate the Stock Market analysis switched back to SELL today based on the preliminary numbers.
That
really doesn’t mean much. (See the page “How
to Use the NTSM System” – the link is on the right side of this page). The change was due to the modified on-balance
volume component that comprises the Volume part of the NTSM analysis. It switched to sell and it was enough to sway
the overall rating.
I sold on the 27 July sell signal at S&P 500 1301 and I am
defensively positioned with only a small amount of my portfolio invested in
stocks. (Zero stocks in the 401k.) I am
near 100% short in the trading portfolio.
