Since the beginning of the COVID-19 outbreak, we’ve seen a great deal of volatility. But, in the two months since March 23rd’s record low, the S&P 500 has risen over 30%.1,2 While past performance doesn’t guarantee future results, it shows how quickly market sentiment can change.
You may be wondering, “Why is the stock market doing so well when the economy is doing so poorly?” When trying to evaluate why the markets are behaving a certain way, economic indicators can help provide context for what can often seem like counter-intuitive behavior. Today’s issue will feature “Terms of the Week”, as we define lead, lag, and coincident indicators.
Terms of the Week
Lead indicators are factors that are used to anticipate what may happen 6-9 months in the future. Think of the stock market as the foremost lead indicator. Now, imagine that the stock prices today are anticipating where the economy will be in 6-9 months. Is it correct? Despite what some may claim, no one knows for sure.
Alternatively, coincident indicators attempt to show the state of the economy right now. For example, gasoline deliveries are currently trending higher, consumer confidence appears to have stabilized, and airlines are seeing more bookings. Even the supply of toilet paper seems less of a concern these days. This may hint at higher consumer confidence at present.
Finally, lag indicators provide insight into past economic data. They may confirm long-term trends, but they are not very good at forecasting. The consumer price index is a historically classic example of a lag indicator. It tells us what inflation was, but doesn’t provide much insight about the future.
|In the News|
Did you know that June is Ohio Wine Month? To celebrate, the Akron Beacon Journal has posted an article pairing delicious cheeses with great tasting wines. With each pairing, provided is information about the winery or restaurant so we can try them as well. Find the article here.
In other great news, Governor Dewine announced, on Thursday, that the entertainment sector of the economy can reopen tomorrow! This includes zoos, museums, movie theaters, playgrounds and more. Click here to find out more.
1. Putnam.com, May 21, 2020
2. Reuters.com, May 21, 2020 - The S&P 500 Composite index is an un-managed index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
| June 09, 2020