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Boom/Gloom Index confirms the downturn

Oil markets
By Paul Hodges on 02-Oct-2011

Index Oct11.pngThe IeC Boom/Gloom Index seems to have done its job.

It was launched in June 2009, as a way of reflecting the extremely positive sentiment then building in financial markets. And as the chart shows, it remained bullish until July (blue column). Since then it has plunged back to the low levels seen between Q4 2007 – Q1 2009.

This time, unlike Q3 2010, there has been no quick bounce from a new version of the US Fed’s August 2010 launch of the QE2 Lifeboat Party.

Interestingly, the world’s leading stock market index, the US S&P 500 has now followed its downwards path very quickly (red line). This is unlike the experience of 2007.

The start of the recession has since been officially dated to December 2007, 1 month after the Index gave its warning. But investors were very much slower to realise that a downturn was close.