The Conference Board’s Coincident-Lagging Ratio has done a pretty good job of identifying recessions since 1958. That is, until now. In each of the last eight recessions, the Coincident-Lagging Ratio bottomed near the end of the recession and was declining throughout the recession.
Over the past decade, global cyclical stocks and the dollar have tended to move in inverse directions. Whenever the dollar weakens, like in the first half of 2009 and the second half of 2010, cyclical stocks have tended to outperform the broader market.
Over the past decade there has been a very strong relationship between US 10-year treasury yields and the gold/copper ratio. As the gold/copper ratio increases (i.e. gold becomes more expensive relative to copper), yields have fallen to the tune of an -85% correlation.
There are fears that the world is on the precipice of turning back the clock on globalization. In some ways, the case can be made globalization has been retreating since the financial crisis. One of the strongest supporting data points of that argument is world trade data.
On 11/4/16, the 65-day correlation between between the S&P 500 and US 10-year treasury yields was as negative as it had been at anytime since June 2007. The 65-day rolling correlation was -30% compared to a 73% correlation that had occurred just a few months earlier in June.
For the first time since 2011-2012, inflation surprises are positive in many parts of the world. The Citi Inflation Surprise Index is at the highest level since 9/2011 in Asia-Pacific, it’s at the highest level since 10/2011 for the Eurozone, and it’s at the highest level since 5/2012 in the emerging markets.
It is somewhat hard to believe but oil prices are up nearly 90% over the past year. The past two times oil prices have increased this much year-over-year, US 10-year bonds rallied quite significantly. In 2008, oil was up over 100% in July and bond yields were hovering just over 4%.
The latest NFIB Small Business Survey was a blow out report if there ever was one. Small business optimism increased to 105.8 in December from 98.4 in November and well above expectations of 99.5.
‘Quality’ is one of the those terms in finance that if you ask three different investors to define you get four different answers.
For the past couple of months, and especially since the US presidential election, US financial stocks have been on a great run. On an equal-weighted basis, US mid and large cap financial stocks are up a scorching 16.7% over the past 50 days.