Economic Indicators: Forecasting Bad Weather

Economic Indicators: Forecasting Bad Weather

Economic indicators are changing. The US markets are moving out of a distribution phase consisiting of lateral movements and indecision in market sentiment: will it result in a mark-down and in a recession?

Economic Indicators

The US economy is still not heading to a recession. However, various macro signals and economic indicators imply a slowdown:

  • the property market has reached its highest
  • gold is running again
  • unemployment is growing
  • the PMI index is decreasing
  • commodities are slowing due to the impact of the trade war

Notwithstanding, sector rotations are now a reality and the consistent pick-up of Utilities and Consumer Staples (up more than 10% from January 2019) means the financial cycle is well beyond its peak. The yield curve suggests much more than an adjustment:

Correlations between equities and bonds have varied dramatically over the last 10 years, ranging from approximately -0.8 to 0.2. However, when looking at how stocks are cheap or expensive relative to bonds, it seems that the era of zero rates has modified the long-term level of their ratios. Accordingly, the slow-down is bringing valuations towards a new normal (but higher) level.

Thus, we may conclude that the market top has been already reached by US stocks and that a defensive move is more than appropriate if not already taken.


CAPE. Retrieved from

Treasuries Yields. Retrieved from

Monitoring the Economy. Retrieved from

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