Ask stock market professionals whether the recent run-up in the market is a signal that the economy is turning around and you’re likely to get a variety of opinions – yes, no, and maybe.
Ask stock market professionals whether the recent run-up in the market is a signal that the economy is turning around and you’re likely to get a variety of opinions — yes, no, and maybe. Even those who rely on market history to help them see into the future are worried that this recession isn’t like any other and that historical norms may not apply. One of those norms is the Conference Board’s Index of Leading Economic Indicators, which, as its name implies, attempts to predict where the economy is headed over the next several months.
Market optimists like to point out that the index rose in April for the first time in seven months and that a majority of the 10 components that make up the index were higher for the first time in 18 months. Seven of the components that make up the index were higher in April, with the biggest positive effect coming from the stock market, where prices surged from their March lows. Gains in other areas, however, were not as robust, with some indicators doing no better than signaling that the rate of economic decline is slowing.
One month’s rise doesn’t make a recovery, say the pessimists. Many market watchers agree. Only when nine of the 10 index components go up over a six-month period, they say, is it a fairly reliable sign that the recession is history. On the other hand, those who see brighter days ahead say the April numbers have broken the string of downturns, which they maintain is a positive omen for the economy.