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Chart of the week: Leading indicators worsen

Yet investments have not yet fully reflected the concerns this signal appears to be giving.

The US Index of Leading Indicators, a composite of 10 economic data points that includes things like the jobs market, consumer sentiment, manufacturing activity, and more, has continued to slide further into negative territory. Typically, this would be a worrying signal: Deep, negative readings for this indicator are perceived to potentially forecast changes in the overall economy and turning points in markets. This index is approaching the previous low set during the COVID pandemic, yet investor and business sentiment, broadly speaking, is not nearly as dour as it was then.
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Source: FactSet, as of May 30, 2023.
Previous charts of the week Date
Largest 10 led 05/25/2023
US at peak interest rates? 05/18/2023
Setting Wall Street's bar too low? 05/11/2023
Gold $2,000 04/27/2023

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US at peak interest rates?

Over the past year, stocks have essentially traded sideways—with some significant bouts of volatility interspersed. Stocks hit their deepest near-term low in October 2022 and have recouped a big chunk of their 2022 losses thus far this year. But a closer look reveals that most of this recovery has been by 10 just megacaps. This lack of breadth to a rally is typically viewed as one that may not have the momentum of a stronger recovery.

S&P 500 market leadership chart
Source: FMRco, Bloomberg, as of May 22, 2023.
Source: FMRco, Bloomberg, as of May 22, 2023.

US at peak interest rates?

Earlier this month, the US Federal Reserve raised their key interest rate by 0.25% to a range between 5.00% and 5.25%. Fed fund futures are forecasting a likely pause at the next FOMC meeting, and a growing possibility that there could actually be rate cuts thereafter. Rate decisions by other central banks have been mostly similar to that of the Federal Reserve in recent years. If US rate increases are nearing the end of this cycle, could other central banks follow suit?

Major central bank policy rates chart
Source: Strategas, as of May 18, 2023.

Setting Wall Street's bar too low?

Q1 earnings season is winding down, and it's been a relatively pleasant one compared to the bloodbath that many expected—at least relative to consensus forecasts. But a long-term look at the percentage of companies in the S&P 500 that beat earnings expectations may reveal a notable trend that shouldn't be ignored. Over the past 30 years, an increasingly greater percentage of corporate earnings reports are coming in better than expected. There may be a multitude of reasons for this trend, including lower expectations going into earnings announcements and increased earnings manipulation. Regardless, investors may want to take into account the increasing prevalence of earnings beats.

COTW_051123
Source: Strategas, as of May 10, 2023.
Source: Strategas, as of May 10, 2023.

Gold $2,000

The price of LBMA gold recently rose above $2,000, a key long-term technical price level that has served as resistance for multiple years. Just once before—during the summer of 2020 in the midst of the COVID pandemic—did gold prices briefly surmount $2,000 per ounce. A variety of reasons have been attributed to gold's rally off its recent low near $1,640 in October 2022, including a strong possibility that the Federal Reserve may not raise rates much further and could actually begin cutting rates in the near future (gold is thought to have a negative correlation with interest rates). Additional reasons include a flight to safety in hard assets like gold with recession risks looming and increasing global demand for the precious metal.

COTW_042723
Source: FactSet, as of April 26, 2023.
Source: FactSet, as of April 26, 2023.