Economic Indicators

The Conference Board “publishes leading, coincident, and lagging indexes designed to signal peaks and troughs in the business cycle for major economies around the world,” including the widely cited Leading Economic Index (LEI) for the U.S. Does LEI predict stock market behavior? Using the as-released monthly change in LEI from archived Conference Board press releases and contemporaneous dividend-adjusted daily levels of SPDR S&P 500 (SPY) for June 2002 through November 2023 (257 monthly LEI observations), we find that: Keep Reading

Is public saving rate a leading indicator of the stock market? Arguably, an increase (decrease) in saving rate means a shift away from (toward) consumption, corporate earnings and associated stock value. The Bureau of Economic Analysis (BEA) releases seasonally adjusted Personal Saving Rate (PSR) monthly with a lag of about one month for initial release and two additional months for revisions. Using this series and monthly S&P 500 Index level during January 1959 through September 2023, we find that…
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A reader asked: “Is disposable income a leading indicator of the stock market?” Arguably, an increase in disposable income could spur consumption, corporate earnings and associated stock values. The Bureau of Economic Analysis (BEA) releases seasonally adjusted Disposable Personal Income (DPI) monthly with a lag of about one month for initial release and two additional months for revisions. Using this series and monthly S&P 500 Index level during January 1959 through September 2023, we find that…

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How do individual asset classes react to monthly inflation indications? To investigate, we relate future monthly returns for the following 10 asset class exchange-traded fund (ETF) proxies to monthly changes in the U.S. Consumer Price Index (CPI):

• Equities:
  • SPDR S&P 500 (SPY)
  • iShares Russell 2000 Index (IWM)
  • iShares MSCI EAFE Index (EFA)
  • iShares MSCI Emerging Markets Index (EEM)
• Bonds:
  • iShares Barclays 20+ Year Treasury Bond (TLT)
  • iShares iBoxx $ Investment Grade Corporate Bond (LQD)
  • iShares JPMorgan Emerging Markets Bond Fund (EMB)
• Real assets:
  • Vanguard REIT ETF (VNQ)
  • SPDR Gold Shares (GLD)
  • Invesco DB Commodity Index Tracking (DBC)

Using monthly CPI data (all items) and monthly dividend-adjusted returns for the above 10 asset class proxy ETFs as available from July 2002 through September 2023, we find that: Keep Reading

Does quantified uncertainty in government economic policy reliably predict stock market returns? To investigate, we consider the U.S. Economic Policy Uncertainty (EPU) Index, created by Scott Baker, Nicholas Bloom and Steven Davis and constructed from three components:

1. Coverage of policy-related economic uncertainty by prominent newspapers.
2. Number of temporary federal tax code provisions set to expire in future years.
3. Level of disagreement in one-year forecasts among participants in the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters for both (a) the consumer price index (CPI) and (b) purchasing of goods and services by federal, state and local governments.

They normalize each component by its own standard deviation prior to 2012 and then compute a weighted average of components, assigning a weight of one half to news coverage and one sixth each to tax code uncertainty, CPI forecast disagreement and government purchasing forecast disagreement. They update the index monthly at the beginning of the following month, potentially revising recent months. Using monthly levels of the EPU Index and the S&P 500 Index during January 1985 through August 2023, we find that: Keep Reading

Each month, the Institute for Supply Management (ISM) each month generates the Services Purchasing Managers Index (PMI), aggregating monthly inputs from purchasing and supply executives in services firms across the U.S. regarding business activity, new orders, employment and supplier deliveries. ISM releases Services PMI for a month on the third business day of the following month. Does the monthly level of Services PMI or the monthly change in Services PMI predict U.S. stock market returns? Using monthly seasonally adjusted Services PMI data during January 2008 through January 2016 from the Federal Reserve Bank of St. Louis and from press releases thereafter through August 2023, and contemporaneous monthly S&P 500 Index closes, we find that: Keep Reading

According to the Institute for Supply Management (ISM) each month generates the Manufacturing Purchasing Managers’ Index (PMI), aggregating monthly inputs from purchasing and supply executives in manufacturing firms across the U.S. regarding new orders, production, employment, deliveries and inventories. ISM releases Manufacturing PMI for a month at the beginning of the following month. Does Manufacturing PMI predict stock market returns? Using monthly seasonally adjusted Manufacturing PMI data during January 1948 through January 2016 from the Federal Reserve Bank of St. Louis (discontinued and removed) and from press releases thereafter through August 2023, and contemporaneous monthly S&P 500 Index closes, we find that:

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How do different asset classes interact with euro-U.S. dollar exchange rate? To investigate, we consider relationships between Invesco CurrencyShares Euro Currency (FXE) and the exchange-traded fund (ETF) asset class proxies used in the Simple Asset Class ETF Momentum Strategy (SACEMS) or the Simple Asset Class ETF Value Strategy (SACEVS) at a monthly measurement frequency. Using monthly dividend-adjusted closing prices for FXE and the asset class proxies since February 2006 as available through August 2023, we find that: Keep Reading

How do different asset classes interact with U.S. dollar valuation? To investigate, we consider relationships between Invesco DB US Dollar Index Bullish Fund (UUP) and the exchange-traded fund (ETF) asset class proxies used in the Simple Asset Class ETF Momentum Strategy (SACEMS) or the Simple Asset Class ETF Value Strategy (SACEVS) at a monthly measurement frequency. Using monthly dividend-adjusted closing prices for UUP and the asset class proxies since March 2007 as available through August 2023, we find that: Keep Reading

A subscriber asked whether aggregate U.S. state tax revenues, as an indicator of economic activity, lead the U.S. stock market. To investigate, we compare behaviors of total quarterly state tax collections and SPDR S&P 500 ETF Trust (SPY). Because these series are not stationary (generally increasing rather than mean reverting), we relate changes in them. Because the state tax revenues exhibit strong seasonality, we focus on a 4-month simple moving average (SMA4) of state tax revenues. Because the SMA4 series involves substantially overlapping measurements that can distort statistics, we also look at annual measurements. Using quarterly state tax collections data and quarterly dividend-adjusted prices for SPY as available from the first quarter of 1994 (limited by tax collections data) through the second quarter of 2023, we find that: Keep Reading