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Chart of the week

As growth turns higher, leading indicators remain flat

Markets have rallied amid better-than-expected economic data, but leading indicators show little optimism. This week’s chart looks at the growing gap.

June 23, 2023

Amid better than expected data, conditions point lower

Source: Bloomberg Finance, L.P., as of June 22, 2023. The Bloomberg Economic Surprise Index is a measure of major economic indicators out- or underperformance versus consensus estimates. Leading economic indicators based on The Conference Board Leading Economic Index.

  • June has largely been a risk-on month for investors during what has been a risk-on year.
  • Investors are taking their cues from recent economic data, which has moved from resilient to strong, while investor sentiment has turned markedly higher. Bullish sentiment jumped comfortably above the 40% mark in early June and has stayed there since.1
  • Underneath the rally, it is worth noting while real time economic data (i.e., housing starts, nonfarm payrolls, etc.,) has tracked significantly better than expected (black line), forward-looking economic indicators (orange line) have steadily declined and sit at their lowest point of the past two years.
  • As the chart shows, both indicators moved directionally together until August 2022, when the real-time data began to turn higher than expected. However, the index of leading economic indicators has seen no such recovery, pointing to the potential slower growth ahead.2
  • Equity returns and economic growth are not always correlated. Amid the protracted decline in leading indicators, investors may be wise to reevaluate the level of risk within their portfolio and consider turning toward lower or uncorrelated sources of potential return.

  • AAII Investor Sentiment Survey, as of June 21, 2023.

  • Bloomberg Finance, L.P., as of June 22, 2023. The Bloomberg Economic Surprise Index is a measure of major economic indicators out- or underperformance versus consensus estimates. Leading economic indicators 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.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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