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Chart of the week

A slog ahead? Leading indicators point to a downturn

Data points toward a potential slog as leading economic indicators weaken. This week’s chart looks at why markets could remain choppy.

January 27, 2023 | 2 minute read

Leading indicators decline despite strong job market

Bloomberg Finance, L.P., as of January 26, 2023. Leading economic indicators based on The Conference Board Leading Economic Index.

  • U.S. stocks are off to a solid start to 2023, driven by improved investor sentiment amid a strong job market combined with falling inflation data, spurring investor hopes that the Fed may be near the end of its rate hike cycle.
  • In line with the constructive start to the year, U.S. GDP data for Q4 2022 released this week came in slightly above expectations (2.9%) while the CBOE VIX, which measures expected equity volatility, has steadily declined since mid-December.
  • Despite the sanguine tone, The Conference Board Leading Economic Index, also released this week, highlighted the possibility that economic storm clouds could be forming.
  • The Index had been moderately negative each month in 2022, but turned more deeply negative in the final months of the year, driven by weakening manufacturing and housing data, among other indicators. As the chart shows, it has turned more negative on an annual basis than at any time in the past decade other than in early 2020.1
  • The Index of course is a weathervane and not always indicative of forthcoming economic data, particularly as the firm employment picture (black line) combined with rising wages continue to suggest consumer spending could remain solid.1
  • Yet, the chart is a reminder that markets may experience further volatility, particularly as the “recession question” remains atop investors’ minds. Against this backdrop, investors may be wise continuing to seek alternative sources of income and total return.

  • Bloomberg Finance, L.P., as of January 26, 2023. Data based on the Conference Board Leading Economic Index.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

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