Friday, May 3, 2013

The Stock Market is a Co-insident Indicator

Everyone knows that the Stock Market is included in the Conference Board's Leading Indicators, right?  -- it is included in the press release every month.

Looking at these figures, taken from Liz Ann Sonders at Schwab, it is clear that market dips and economic dips occur at the same time. It seems that the stock market is just another co-incident indicator.

On the other hand, the economic data shown below was constructed after-the-fact by the BLS -- the stock market is not predicting the economy, but it is a rapid indicator of where it is today.

It is interesting to think about whether it is predicting the US economy or the world economy or some weighted average. Clearly European financial problems rock the stock market, but is that because people believe it will affect the US?



Stock Market at Economic Inflection Points

Chart: Stock Market at Economic Inflection Points I
Chart: Stock Market at Economic Inflection Points II