Thursday, October 4, 2012

Stock Market Indicators

The global economy continues to weaken, while the US continues to grow at a lackluster pace. Our Fundamental Stock Market Indicator (FSMI) gauges the combined impact on the stock market of developments in our domestic economy and the one abroad. The FSMI includes two weekly components that are US-centric (i.e., initial unemployment claims and consumer confidence) and a third one that is very sensitive to global economic developments (i.e., industrial commodity prices).

The FSMI has been very highly correlated with the S&P 500 since 2000. They have diverged occasionally, most recently this summer as stocks rallied since June 1 while the FSMI sank. The FSMI has rebounded during each of the past five weeks through the week of September 22, which is providing some fundamental support for the recent rise in stock prices. By the way, our FSMI is highly correlated with the ECRI’s Weekly Leading Index, which has also rebounded recently.

Today's Morning Briefing: Game Changer vs. Endgame. (1) The empty chair. (2) Still hoping for change. (3) High and low energy. (4) Back in the game. (5) Romney’s $17,000 solution to the Fiscal Cliff. (6) Fully invested bears in the Big Apple consider raising cash. (7) The market loves postponed apocalyptic scenarios. (8) Nice numbers. (9) What about ETFs? (More for subscribers.)

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