Friday, November 11, 2011

ECRI Leading Economic Indicator Flashes Warning

I generally think that too much emphasis is placed on economic forecasts when making investment decisions.  However, recessions are not good for stock prices.  The Economic Cycle Research Institute's weekly leading index has an excellent record in forecasting recessions--and the latest readings are ominous.

Since 1967, when the ECRI weekly leading index has declined below its longer trend level (the 98-week trendline), a recession has followed.  The only major exception was early last year, when a decline was not followed by recession (though it was hard to tell).

The weekly index has been falling steadily in recent weeks.  So perhaps investors in the stock market should not get too comfortable in the weeks ahead, despite the encouraging news from Europe.

Steve Lehman

S & P 500:  1265

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