Monday, April 21, 2014
The Index of Leading Economic Indicators doesn't get much respect these days (it's often maligned as the Index of Mis-Leading Indicators), but its track record is nothing to scoff at, as the chart above shows. The growth of the index typically picks up in the early stages of a recovery, and slows dramatically in advance of and during a recession. In addition, the growth of the index typically slows during the latter half of each business cycle. But not this time. At the very least, the LEI is telling us that there is no recession on the horizon and at best, that the economy may in fact be improving somewhat.
In any event, the economy doesn't need to improve to justify an investment in risk assets, it just needs to avoid a recession, since the alternative to risk assets is cash that yields almost nothing.
Posted by Scott Grannis at 3:20 PM