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Specialized Index Makes Case For Improved Economy at Trader’s Narrative





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We have yet to see convincing data flow that the economy is improving. At least not as much as the jump in equity prices since the spring low would suggest. However, a specialized index which has an 82% correlation to US GDP over the past 10 years is way ahead of the S&P 500 index:

strategas bellwether index Sept 2009 alt
Source: Bloomberg

The Strategas Bellwether Index suggests that the stock market has identified an imminent economic turnaround. It includes 15 large caps stocks which are sensitive to economic activity:

  • Apple (AAPL)
  • Advanced Micro Devices (AMD)
  • American Express (AXP)
  • Computer Sciences Corp. (CSC)
  • Walt Disney (DIS)
  • Dover Corp. (DOV)
  • General Electric (GE)
  • Halliburton (HAL)
  • Hewlett-Packard (HPQ)
  • Motorola (MOT)
  • Monster Worldwide (MWW)
  • News Corp. (NWS)
  • Sprint Nextel (S)
  • Schlumberger (SLB)
  • Tellabs (TLAB)

This is yet technical argument for a strong underlying market and economy. The S&P 500 is approximately 60% higher today than in early March 2009. The Strategas Bellwether Index is even higher, about to take out its 2007 highs. The question now is, will fundamentals catch up to this level of valuation? and if so, when?

The danger, of course, is that with so much good news already priced in, in the here and now, what if we do not see the perfect scenario develop going forward? Since the market is all about expectations, it could get ugly (again).

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3 Responses to “Specialized Index Makes Case For Improved Economy”  

  1. 1 Slava

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Thank You,
    But change colors in the graph

  2. 2 Blues

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    read the link and please tell me how can our economy turn around?
    Our debt is above 300% GDP! How to fix that?

  3. 3 GreenAB

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    thanks for the chart,

    1)i guess they put the wrong colours on the charts

    2)how much of the index is made out of AAPL?

    (i guess a lot)

    3)from this chart alone i can see no indication of underlying strenght. it was lagging through all of 2007 and the economy/broader stock market were still growing. maybe there´s a longer term chart to look at?

    4)taking bellwethers as indicators of US economic strength doesn´t make a lot of sense to me, because they a)get a growing part of their business from overseas and b)they are in a far better postion than smaller companies when it comes to reduce costs (relase workers, renegotiate input prices) in order to prop up EPS.

    5)AMD instead of INTC?
    i´m missing WMT. (no consumer stock in a consumer based economy?)

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