One Sign the Economy Is Strong

Earnings season isn’t setting the world on fire, but overall, it seems to be coming in about where most analysts expected. Here is what our earnings expert and market strategist Jeffrey Buchbinder had to say about earnings season so far:

Generally, Q1 results have been in-line with expectations so far and guidance has been good enough to prevent forward estimates from falling much. However, it is frustrating that currency continues to weigh on forward guidance despite the likely year-over-year declines for the U.S. dollar in Q2.

The majority of the economic data have shown some improvement over the past two months, but one recent bit of economic data that is looking very strong is the Economic Cycle Research Institute’s (ECRI) U.S. Weekly Leading Index, which has surged the past two months.

This proprietary indicator uses 50 different time series from various categories, including the Corporate Bond Composite, Treasury Bond Composite, Stock Market Composite, Labor Market Composite, and Credit Market Composite. This indicator looks at change in the U.S. economy, rather than calculating an objective measure of economic health. As such, a rising year-over-year change could be interpreted as improving economic condition, on a relative basis. As you can see here, it has spiked higher and is now near its highest level since late 2014.
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Here’s this same index going back to 2010. It has recently broken out of a multiyear downtrend, suggesting a stronger economy could be around the corner.
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Lastly, the year-over-year change has been steadily improving and is now up to 1.5%, the highest reading since late 2014. But, unlike in 2014, the trend is currently higher. Adding a trend line that would make our in-house technician David Tonaszuck, CMT, proud, the year-over-year change appears to have broken the downtrend and is now moving firmly higher.
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Our odds of a recession in the next 12 months are 15–20%. Overall, the ECRI U.S. Weekly Leading Index is just one piece of data, but it does suggest the odds of a recession should continue to be relatively low.

 

IMPORTANT DISCLOSURES
Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

The economic forecasts set forth in the presentation may not develop as predicted.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

Stock investing involves risk including loss of principal.

ECRI’s U.S. Weekly Leading Index (WLI) is a composite leading index that attempts to anticipate cyclical turning points in U.S. economic activity by two to three quarters. Cycles in economic activity are captured by our U.S. Weekly Coincident Index, which is a comprehensive measure of the economy’s current state, tracking indicators of production, employment, income, and sales.

This research material has been prepared by LPL Financial LLC.

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