Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Why U.S. Indices Could Be At Their Peak

By Kathleen BrooksStock MarketsSep 28, 2018 15:53
uk.investing.com/analysis/why-us-indices-could-be-at-their-peak-200203875
Why U.S. Indices Could Be At Their Peak
By Kathleen Brooks   |  Sep 28, 2018 15:53
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The Fed may have raised its GDP projection for 2018, however, bad omens for US growth are starting to mount. The Markit PMI report for September saw a steep decline in the composite index, which fell to its lowest level since June 2017. As you can see in chart 1 below, the Markit PMI index has a strong positive correlation with US GDP. Thus, the decline in the PMI survey does not bode well for US growth.

As we mentioned in our Fed notes on Wednesday evening, the Fed’s upward revision to the 2018 full year GDP report points to a sharp slowdown in growth in Q4, to the tune of 1.3%. Thus, investors should get ready for a slowdown in the US economy.

As you can see in chart 2, GDP matters for the performance of US stocks. Chart 2 shows the S&P 500 and YoY US GDP. The chart has been normalised to show how they move together. As you can see, US GDP and the S&P 500 tend to move in the same direction. As US GDP has jumped to some of the highest levels in the developed world in recent quarters, the S&P 500 has reached record highs. Likewise, as GDP dips it tends to lead to a period of weakness for the S&P 500. If this relationship holds, as we expect it to, then as GDP moderates the S&P 500 could come under pressure.

We could see the S&P 500 struggle as early as next week when we get the start-of-the-month data dump, including official PMI data and US payrolls. If this shows a moderation in US growth, then US stock performance could be at risk.

US Markit PMI Report (White) And US GDP (Orange)
US Markit PMI Report (White) And US GDP (Orange)

US YoY GDP (White) And S&P 500
US YoY GDP (White) And S&P 500

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Why U.S. Indices Could Be At Their Peak
 

Related Articles

Why U.S. Indices Could Be At Their Peak

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Green Go
Green Go Nov 15, 2018 11:58
Saved. See Saved Items.
This comment has already been saved in your Saved Items
what is composit PMI ,is it cover both manufacturing and service.
Ravinder Singh
Ravinder Singh Sep 30, 2018 13:18
Saved. See Saved Items.
This comment has already been saved in your Saved Items
I love you Kathleen Brooks
Andrew Anderson
Andrew Anderson Sep 28, 2018 16:12
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Instead if trying to massage your ego, make some money by following the trend
Renny Saheb New
Renny Saheb New Sep 28, 2018 16:12
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lol
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email