Economic Help for U.S. Stocks May Arrive Soon: Chart of the Day

Economic Help for U.S. Stocks May Arrive Soon
Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

Economic reports are due to take a turn for the better that will lift U.S. stocks, according to Binky Chadha, chief global strategist at Deutsche Bank AG.

Investors are suffering from “data disappointment” that has become extreme by historical standards, Chadha wrote in a report two days ago. “The typical pattern from here would be for fewer negative surprises and then positive ones.”

The CHART OF THE DAY is similar to one that he used to illustrate the link between economic figures and share prices. The chart compares the four-week average of initial claims for unemployment benefits, as compiled by the Labor Department, with the Standard & Poor’s 500 Index since 2007.

Changes in jobless claims explain 88 percent of the S&P 500’s performance during the period, according to statistical analysis cited in the report. The figure is near a 100 percent limit when two values move in lockstep.

As the relationship suggests, economic data “have been the key driver of equities,” Chadha wrote. They largely explain why stocks have retreated in the past few weeks, the New York-based strategist added. The S&P 500 has fallen as much as 9.9 percent from this year’s high, set on April 2.

Europe’s sovereign-debt crisis and slowing growth in emerging markets have contributed to the decline, the report said. Any stock-market rebound triggered by policy changes on these issues won’t last unless the economic data turn around, he wrote.

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