The markets are certainly volatile these days: one week it’s an impending Greek default, followed by a European downgrade coupled with a financial banking crisis, but it’s not all doom and gloom.
The market’s many moods are difficult for any seasoned investor to manage, but we believe there are always opportunities in global markets, and while the U.S. still needs to resolve its fiscal and monetary policies, it appears there’s a sign of hope on the horizon.
One positive point is the Conference Board Index of Leading Economic Indicators, which is also known as LEI. Historically, the LEI has proven to be a reliant indicator of recessions and recoveries. The index deteriorated ahead of the 2001 global recession, and again in early 2007 and 2008 before the global financial crisis and associated recession began.
As show below, on a year-over-year basis, the LEI has remained high, indicating strong to moderate growth over the next six months.
One of ten indexes used by the LEI to make its predictions is the University of Michigan Consumer Sentiment index. The monthly publication gauges consumer confidence to help determine the potential impact on stocks, bonds and the dollar. If the most recent report is an indicator of things to come, then the engine of the American economy&mdashconsumer spending—may be preparing to shift gears.
The survey indicated that “confidence among U.S. consumers rose in September from the lowest level since 2008,” says Bloomberg. While consumer spending still appears sluggish, consumers are beginning to have a more favorable view of the economy, injecting hope that Americans will once again open up their purses and wallets and help drive the economy forward.
Another factor confirming the strength of the LEI is the strong performance of companies on the S&P Composite 1500 Index. Currently, there are 705 companies with year-over-year revenues of 10 percent or more, which is impressive in this volatile market. During the bottom of the cycle in 2009, only 179 companies grew that fast.
The LEI indicates the U.S. economy will continue to produce dynamic growth companies, which are essential to economic growth and job creation. While the current market volatility has been difficult to maneuver, the future economic situation appears to be much better than what most commentators have been saying.
Despite the negative sentiment out there, investors should remember there will always be highs and lows, peaks and troughs: the importance is remembering to be humble when you’re at the peak and hopeful when you’re in the trough.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
The University of Michigan Consumer Sentiment Index is a survey of consumer confidence conducted by the University of Michigan. The report, released on the tenth of each month, gives a snapshot of whether or not consumers are willing to spend money. The Conference Board index of leading economic indicators is an index published monthly by the Conference Board used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. The S&P 1500 Composite is a broad-based capitalization-weighted index of 1500 U.S. companies and is comprised of the S&P 400, S&P 500, and the S&P 600. The index was developed with a base value of 100 as of December 30, 1994.
