Economic Slump Sends U.S. Stock ‘Buy’ Signal: Chart of the Day
U.S. economic reports are poised to stop disappointing investors so often and start sending stocks higher, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.
The CHART OF THE DAY displays the Citigroup Economic Surprise Index, which Levkovich used to reach his conclusion in a June 17 report. The index is based on the relationship between the past three months of economic data and the average estimates of economists surveyed by Bloomberg.
This month, Citigroup’s index dropped to minus 117.2, its lowest level since January 2009. The reading followed a three- month, 215-point plunge. The gauge fell more than two standard deviations below its historical average, which showed just how far away it was from the norm, the report said.
“When the surprise index is that low, the stock market does have a tendency to generate strong returns” during the next six to 12 months, Levkovich wrote.
Since 1998, the Standard & Poor’s 500 Index averaged a six- month gain of 4.4 percent when the economic gauge was below the two-standard-deviation threshold, according to the report. For 12 months, the average increase was 15 percent. Stocks rose in 79 percent and 87 percent of the periods studied, respectively.
Technology and raw-material stocks rose most consistently along with automakers, retailers and other companies dependent on consumers’ discretionary income. They were the only three of the S&P 500’s 10 main industry groups to post six- and 12-month gains at least 80 percent of the time.
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