US leading indicators are flashing red alert US leading indicators are flashing red alert US leading indicators are flashing red alert

US leading indicators are flashing red alert

PG
Peter Garnry

Head of Equity Strategy

Summary:  US equities rose yesterday to the highest close since 9 September despite US leading indicators for October delivered the biggest m/m decline since March 2009, if we exclude the pandemic, suggesting the US economy is deteriorating and getting closer to a recession. This is adding more evidence to our prediction that corporate earnings will fall next year making 2023 another troublesome year for equities and investors.


An echo from the past

US leading indicators for October came out yesterday at -0.8% m/m which is worst m/m change, excluding the pandemic, since March 2009 when the global economy was stuck in a global credit and banking crisis. Stretching out the perspective and smoothing the indicators, the 6-month average sits at the same level as in December 2007 when the US economy officially entered a recession that eventually continued and amplified into the Great Financial Crisis. As we recently wrote in one of our equity notes, the Eurocoin Growth Indicator (tracking real time GDP in the Eurozone) is already indicating that the European economy is in a recession, and now the US leading indicators are suggesting the US economy is close to being in a recession.

The difficulty in these type of analyses is that recession dynamics change from time to time because the global economy is a complex system. This means that leading indicators fitting prior recessions well will intrinsically have difficulties getting the next recession right. In any case, we can say the economies in the US and Europe are slowing down rapidly due to the interest rate shock, and unless China pulls out a white rabbit successfully kickstarting their economy it will be difficult to avoid a recession. The next question is then what type of recession we get. Is it going to be shallow and short-lived, or is it going to be deeper and longer? Regardless of the severity of the recession the declining leading indicators are adding evidence to our prediction that corporate earnings will fall next year making 2023 another troublesome year for equities and investors.

US leading indicators m/m | Source: Bloomberg

Have the bears lost interest?

S&P 500 futures rallied 1.3% yesterday on no significant new news and the theme basket gainers were predominantly the best performing baskets over the past year if we exclude semiconductors. In other words, it was a momentum driven session yesterday and took the S&P 500 futures to the highest level since 9 September. As we have discussed in our Saxo Market Call podcast the bears are sitting on solid gains for the year if they have been long energy, short bonds, and equities, and as such that there is little incentive for the bears to take a lot of risk in last five weeks of the year. This could lean the sentiment in favour of the bulls and could push equities higher despite the economic picture looks increasingly more negative as discussed above.

S&P 500 futures weekly prices | Source: Saxo
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.