Earlier this weekend, we pointed you to the Citigroup Economic Surprise Index (CESI). As you can see, the index is rising out of a trough.JP Morgan’s Thomas Lee dug into this figure in his September 8 US Equity Strategy Flash.
“Overall, economic surprise has been to the upside and evident in the rise of the [CESI] to -42, its best reading since 05/17,” said Lee. He provides this chart:
Lee added, “Historically, whenever this index has risen from a trough, Cyclicals have outperformed 100% of the time.“
Then in a classic told-you-so move, he points you to a his June 1 note.
In his June 1 US Equity Strategy Flash, Lee said, “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…Figure 5 shows the [CESI] since 2003 and highlights the points where it troughed after having reached a reading of -50 or worse. The current [CESI] reading is at or below past trough levels, suggesting a trough in economic momentum is likely near.” Here’s Figure 5 from that June 1 note:
So, there you go. He called it. And he has been calling it.
But, going back to his September 8 note, Lee tempers his comment by saying, “Of course, investors remain wary due to issues in Europe.”
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