Leading Economic Index (LEI)

The Conference Board’s Leading Economic Index report was released this morning. The index increased 1.2% for the month of August, which makes 4 straight months of increases.

Although its important to note the pace of growth has slowed each month, leading the board to conclude “Taken together, the current behavior of the composite indexes and their components suggests that the pace of economic improvement may be slowing, and the US economy will start the new year under substantially weak conditions.”

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The LEI remains below its pre-COVID highs. Bear in mind, the 0% interest rate forever policy sets the bar extremely low in terms of economic growth. Its entirely possible the stock market can continue its ascent in spite of a sluggish economy.

Unfortunately, it all comes down to the pace of the virus. If there were more lockdowns in the fall/winter (another big mistake), you can throw all economic and market forecasts out the window.

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After breaking out to new highs, the S&P 500 has pull backed to its prior highs in March and the 50-day moving average. In the chart above you can see a couple of 7-8% pullbacks off the March lows.

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The current short term setup appears to be, a break and close above 3430 puts a retest of prior highs and probably new highs on the table. A break below 3300 probably means a bigger decline back in the vicinity of the 200-day average.

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I’m watching the Nasdaq chart, since it overshot its March highs quite a bit more than the S&P 500 due to its heavy tech weighting. Continued weakness could put a retest of those highs as support (in the vicinity of 10K).

Disclaimer: None.

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