Boom/Gloom Index and S&P 500 disconnect

Index Feb12.pngThe blog, like many readers, has become rather fond of the IeC Boom/Gloom Index since it was launched in June 2009. The aim to was to track market sentiment, and it continues to perform this task.

It also throws up intriguing parallels, and sometimes disconnects, with financial markets. As the chart shows, this month is a classic case.

The Index itself (blue column) remains deep in Gloom territory, with a reading of 2.2. This is not the lowest reading on record, which was 1.4 in January 2009. But it is matched by the Austerity reading (shown last month) which continues to work its way higher.

Meanwhile, however, the world’s main stock market index, the S&P 500, is attempting a rally. So far this is making good progress (red line) towards its recent high of 1365 back in April, and is now over 1300.

We have been here before, of course, during the end-2007/early 2008 period. Then the Index was also (correctly) in Gloom territory, whilst financial markets continued to appear in good shape.

Will this pattern repeat itself this time? Or will it be the Index that adjusts to a more optimistic outlook? The fascination of the Index is that it highlights the key questions. It also, as today, provides another view to Wall Street’s euphoria.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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