Economic Failure to Satisfy Hurts U.S. Stocks: Chart of the Day

Enough disappointments are coming out of economic reports to signal that share prices are poised to fall, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

The CHART OF THE DAY displays the Citigroup Economic Surprise Index, based on comparisons between the past three months of data and economists’ average estimates in Bloomberg surveys. The Standard & Poor’s 500 Index is also included.

In the past two months, the surprise index fell 48 percent from its highest level since March 2011. The decline would have been steeper except that two indicators released yesterday, the Institute for Supply Management’s services gauge for February and factory orders for January, exceeded most projections.

“Good news will not look as positive,” Levkovich wrote in a March 2 report, as economists raise estimates in anticipation of faster U.S. expansion. The shift in perception points to a “growing likelihood” that stocks will drop, he wrote.

Any slump may hit technology companies the hardest, the report said. They have been this year’s best performers among the 10 main industry groups in the S&P 500, according to data compiled by Bloomberg.

Retailers, automakers and providers of consumer services are also vulnerable to losses, Levkovich added. The industries are part of the S&P 500 Consumer Discretionary Index, which has the third-biggest gain.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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