U.S. ISM Manufacturing Index and Cyclicals EPS Revision

U.S. ISM Manufacturing Index and Cyclicals EPS Revision This chart shows the correlation between the ISM Manufacturing Index and cyclicals EPS revision, suggesting that 4Q19 will see a reset, with capital goods pricing in an actual earnings recession. Picture source: Morgan Stanley Research

U.S. ISM Manufacturing Index and Cyclical Stocks

U.S. ISM Manufacturing Index and Cyclical Stocks Great chart showing that cyclical stocks suggest an economic slowdown rather than an imminent recession. Picture source: Leuthold Group

Cyclical/Defensive Equities Ratio and 10-Year Treasury Yield

Cyclical/Defensive Equities Ratio and 10-Year Treasury Yield The chart shows the correlation between the cyclical/defensive equities ratio and the 10-year treasury yield, signaling an economic slowdown. Picture source: Morgan Stanley Research

Cyclical Stocks Responding to Steepening Long-term Yield Curve

Cyclical Stocks Responding to Steepening Long-term Yield Curve Keep in mind that the Fed has little influence on the long end of the yield curve. And currently, the 30-year Treasury rate minus 10-year Treasury rate spread has a normal upward slope, like in the mid-1990s when the economy was growing. The chart below shows that the…

Citi Economic Surprise Index and S&P 500

Citi Economic Surprise Index and S&P 500 The Citi Economic Surprise Index has risen sharply, but it has an inconsistent history in terms of its correlation with the S&P 500. It is a cyclical indicator: high readings suggest favouring defensives over cyclicals, and low readings suggest favouring cyclicals over defensives. Picture source: Renaissance Macro

U.S. Business Cycle Indicator

U.S. Business Cycle Indicator Morgan Stanley’s cyclical indicator is still in “downturn.” The entry into the “downturn” phase suggests lower returns for stocks and risky assets. Picture source: Morgan Stanley Research

Equity Market Driven by Bonds Not Profits

Equity Market Driven by Bonds Not Profits The chart shows a widening gap between cyclicals and bond proxies. It is clearly a cyclical bear market within a bull market, as during the dotcom bubble. Picture source: Societe Generale Cross Asset Research