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Economy , Stocks , Investing

Indicators, Leading and Contrarian

by Glenn Corey
Updated: December 23, 2022

What's the best leading indicator for the economy? That's easy: The stock market. Decades of data back this up.

Even so, other variables can also serve as leading economic indicators -- from the ISM Index of New Orders to Average Weekly Manufacturing Hours to New Orders for Manufacturing and Consumer Goods (and more). In fact, the Conference Board uses a U.S. Leading Economic Index that includes the trend of the S&P 500 and combines it with nine other economic variables.

And, as you can see in the chart below of the past six decades, there are times when the U.S. Leading Economic Index can be valuable indeed... like right now.

221223 - IMG

Note the places on the chart where the horizontal dotted line, the blue line, and the shaded areas intersect. Then notice that the blue line has just recently declined into the dotted line: This a reliable indicator that a recession is headed our way. How reliable? Well, it correctly predicted all eight recessions since the 1960s. We both know the blue line is likely to fall even further. The blue line and the shaded areas show you how deeply a recession can go.

The chart, along with other leading indicators, suggests that the coming recession could be severe. Yet many economists don't see it that way. In a recent poll of economists, while 63% of them said they expect a recession, they don't see it lasting the full year and don't think it will be so bad. But the track record of economists isn't that great. After all, it was an economist who said in October 1929 that stocks had reached a permanent plateau -- two weeks before the crash! You could almost do the opposite of what a consensus of economists say and do pretty well.

So who do you believe? We look at all these factors and more, with Elliott waves providing the backbone of our analysis. It's clear that a change is likely, and the Leading Economic Index is a good tell of what's to come. There's more to it than that, though, and we'd love to share our in-depth analysis with you. Put us on your team and let us show you where we think the market is headed. It's time to take advantage of the most powerful market analysis tool an investor can use.

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