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.
