An interesting point from JPmorgan’s Thomas Lee, who argues that the economic data has been so consistently disappointing, that a rebound in the Citi Economic Surprise Index (which measures the data against expectations) is practically guaranteed.
Again, it’s not that the economy will rebound, but the economy will rebound vs. expectations, which is actually what matters to markets.
We have found economic surprise indices (CESI, the Citi Economic Surprise Index in this case, CESIUSD index) to be a historically reliable signal for both Cyclical (vs. Defensive) relative performance as well as for S&P 500 absolute return. Economic momentum has been slowing for the past few months, reflecting the dual effects of both higher oil prices as well as disruptions stemming from Japan. Economic momentum, as defined by the Citigroup Economic Surprise Index (CESIUSD Index <<GO>>), is at an extreme low level of –57.9. This index is mean reverting, however, suggesting we are likely to see a rebound in economic surprise soon.