What Leading Indicators Index Means For Stocks

The S&P 500 hasn’t had a 1% or more move in 71 straight trading sessions (as of Thursday). That’s the longest streak since October 2018. The longest streak in 24 years is 94 days ending in January 2018. Furthermore, it has been 29 days since the S&P 500 has fallen on back to back days which is the 2nd longest streak since 2005. Therefore, it is no surprise that the stock market’s performance in December was a key driver of the Leading Indicators index. Without stocks doing well, it would have had below 0% yearly growth for the first time of this cycle. Instead it had just 0.1% growth. Even still, its monthly growth rate fell from 0.1% to -0.3% which missed estimates by a tenth.

As you can see from the chart below, the leading index’s yearly growth rate would have been almost 1% lower without stocks. That’s the biggest positive impact the stock market had since the beginning of this expansion.

Stocks lapped the bottom of the Q4 2018 correction/mini bear market. Yearly comps for the S&P 500 will get tougher as the year goes on. Luckily, the comps for the leading index overall will get easier.

The interest rate spread was the only other indicator in this index that was improving. The length of the average workweek, unemployment claims, new orders for consumer goods and materials, and the ISM manufacturing new orders index were all in worsening trends. The good news is initial jobless claims showed a worsening trend only because of a seasonal spike related to the end of the late Thanksgiving.

Initial claims have fallen sharply since then as the monthly average in December was 233,500, while the current January monthly average is only 210,000. In the week of January 18th, the number of claims rose 6,000 to 211,000 and the 4-week average fell 3,250 to 213,250. The spike in initial claims is old news though. The more recent controversy was the spike in continuing claims around New Year’s Day seen in the chart below. That was likely seasonal just like the post-Thanksgiving spike as continuing claims have fall from 1.804 million to 1.731 million in the past 2 weeks. Yearly growth fell from 5.6% to 1.4%.

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