Market Update for the Week of February 26th, 2024
Another one bites the dust: Conference Board walks back U.S. recession call. Data has been quiet recently. The Conference Board’s Leading Economic Index (LEI) was the one big release we received. As a leading indicator of the economy, the LEI is meant to predict when the U.S. economy is headed for recession. Well…the latest data show it’s contracted for the 23rd straight month! Despite this, the Conference Board became the latest forecaster to walk back its U.S. recession prediction
Source: Nasdaq Dorsey Wright
The persistent weakness of the LEI mainly comes from two areas: manufacturing and consumer sentiment. But this hasn’t translated to recession. That’s because:
~ Manufacturing is only about 10% of the U.S. economy, compared to 70% for services. So, strength in services can overwhelm weakness in manufacturing.~ Consumer spending has stayed strong, even though consumers say they’re not confident despite falling inflation, solid real wage gains, and a still strong labor market.
So, the U.S. has avoided recession, thus far.
Not all major economies are avoiding recession. Several major economies are now in or just came out of “technical” recessions (two or more quarters of negative GDP growth). Fortunately, these recessions have generally been mild. The chart below looks at real GDP growth for the last three quarters of 2023. Six of the nine economies shown are either currently in a technical recession (Japan, the UK, Germany, and France) or exited one in Q4 (Sweden and Norway). Only the US, Canada, and Italy have avoided recession.
Still not all doom and gloom. Still, only looking at GDP is a crude way to judge the health of an economy. That’s why the National Bureau of Economic Research (NBER) looks at measures of employment, income, and sales, in addition to output, to determine U.S. recessions. In fact, despite these technical recessions, many of these economies still have solid labor markets (the unemployment rate is just 3.7% in Norway, 3.1% in Germany, and 2.4% in Japan!). So, most of these economies are in an okay spot. And the recessions have mostly been mild (so far). One other positive is that recessions make it easier for central banks to justify cutting rates.
The current reading for the Nasdaq Dorsey Wright PR4050 Cash Trigger is: Money Market = 9.86% & U.S. Equity Core = 98.59%. For the PR4050 indicator to trigger and alert us when we should consider moving to cash, Money Market must be 50% or above and U.S. Equity Core must be 40% or below.
Below is the most recent D.A.L.I. (Dynamic Asset Level Investing) Indicator showing Domestic Equities in the top spot with a nice spread between all other asset classes.
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