The Word from Main Street

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.

Source: Nasdaq Dorsey Wright

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.

Source: Nasdaq Dorsey Wright

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.

 

Source: Nasdaq Dorsey Wright

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These views are those of the author, not of the broker-dealer or its affiliates. This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. All investments involve risk, including loss of principal. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. All indices are unmanaged and may not be invested into directly.

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Nasdaq Dorsey Wright developed the indicators described above. They have been prepared without regard to any particular investor's investment objectives, financial situation, and needs. Accordingly, investors should not act on any recommendation (express or implied) or information in this report without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions.

Nasdaq Dorsey Wright’s “DALI" employs relative strength-based analysis to rank macro asset classes based on developing leadership trends within the global capital markets. The objective guidance within DALI provides the tools necessary to properly allocate portfolios across all major asset classes in an effort to emphasize strength wherever it exists. Domestic Equities, International Equities, Commodities, Currencies, Fixed Income and Cash are evaluated daily to identify dynamic developments across investment genres, as well as within them. This tool provides the tactical precision that allows investors to adapt as the market leadership changes.