Boom/Gloom Index tumbles as S&P 500 hits record

Economic growth

SHARE THIS STORY

Index Sept14aThe stock market used to be a good leading indicator for the economy.  But that was before the central banks decided to manipulate it for their own purposes.  As then US Federal Reserve Chairman boasted 3 years ago on launching their second round of money-printing:

Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20%-plus and the Russell 2000, which is about small cap stocks, is up 30%-plus.”

Of course, the Fed launched their QE low-cost money policy with the best of intentions.  They genuinely thought that a higher stock market would boost consumer spending by creating a new ‘wealth effect’, and that this would then encourage companies to invest in new capacity, thus boosting employment.

Unfortunately, the data shows that fewer Americans own stocks than own houses – only 52% versus 65%.  So the impact of higher stock prices hasn’t actually helped to boost spending, particularly as real household incomes remain well below pre-Crisis levels.

Instead we have seen a growing divergence between the performance of the stock market and the wider economy – the opposite of the Fed’s intention.

So the question now is very simple.  Will the economy suddenly start to respond to the Fed’s policy?  That, of course, would be very welcome, if it happened.  Or will the Great Unwinding now underway in oil and currency markets start to impact equity markets as well?

Worryingly, the IeC Boom/Gloom Index is giving us its own answer – and it is not positive.  As the chart above shows:

  • The S&P 500 Index has hit a record 2000 level for the first time (red line)
  • But the Boom/Gloom Index of sentiment actually fell sharply (blue column)
  • It is now bordering levels which have always seen stock market losses in the past

The chemical industry is also, of course, also a good leading indicator.  It tends to pick up around 6 months before the wider economy, and to turn down in advance as well.  And its Q2 downturn was a clear signal that H2 would be more difficult that expected.

Now the the Boom/Gloom Index is reinforcing that message.  Both indicators may be wrong, and the stock market right.  But the blog certainly wouldn’t plan ahead on that basis, if it was still running a major chemical business today.

PREVIOUS POST

August highlights

04/09/2014

Many readers have been taking a well-earned break over the past few weeks.   A...

Learn more
NEXT POST

China Transformation webinar tomorrow

08/09/2014

Today is Mid-Autumn Festival day in China, held to celebrate the harvest.  Trad...

Learn more
More posts
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Read
Resilience amidst headwinds is key for H2
30/06/2019

Resilience is set to become the key issue as we look forward to H2, as I note in a new analysis for ...

Read
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

Read
US-China trade war confirms political risk is now a key factor for companies and the economy
12/05/2019

There are few real surprises in life, and President Trump’s decision to launch a full-scale tr...

Read
Uber’s $91bn IPO marks the top for today’s debt-fuelled stock markets
28/04/2019

Uber’s IPO next month is set to effectively “ring the bell” at the top of the post...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more