Since peaking on July 10, the Macro Economic Reports Indicator (first introduced on this blog on June 17) has stagnated. Including the two major macro economic reports issued thus far this week (consumer confidence and durable goods orders), the indicator now sits a full 3 points below its July 10 peak (see table*). This is not a good omen for future earnings expectations.
Investment Strategy Implications
With so much stock market value built into future earnings reports, below consensus readings in the macro economic sphere suggest a heightened risk factor to future earnings reports coming in above expectations – a necessary ingredient for higher equity prices.
As noted in yesterday’s blog posting, earnings need to be rather robust over the next six to twelve months to justify current equity valuation levels. When macro economic reports, especially the kind that were issued thus far this week, come in well below consensus expectations (not to mention the sizable downward revision in today’s durable goods orders), investors are advised to proceed cautiously.
*click image to enlarge