Chart Source: The Conference Board; https://www.conference-board.org/topics/us-leading-indicators/
The chart above is The Conference Board's Leading Economic Index, which tracks a collection of data that are considered to be markers for what lies ahead for the economy. Historically, The Conference Board Leading Economic Index has reliably dipped prior to recessions. As you can see, the leading economic index (the light blue line) has been in sharp decline since roughly the beginning of 2022, and yet we haven't yet seen a recession materialize! This economic cycle has been particularly unusual in that recession indicators have been flashing red for an extended period of time and yet the economy has maintained its resilience. The recession that accompanied the Great Financial Crisis of 2008 is indicated by the widest gray bar. By comparison, during this current cycle the leading economic index has already fallen much further than it did prior to the Great Financial Crisis. The economy tends to be a story of "everything is great until it isn't" and it's notoriously difficult to pinpoint the time where things take a turn for the worse. The beginning of a recession tends to be marked by a change in the direction of the Coincident Economic Index (the dark blue line) and we haven't yet seen a definitive change in the direction of this index during the current cycle. In my opinion, these two indexes play a valuable role in the concert of information that I look at when trying to discern what direction the economy is headed.
Chart Source: Joel Merritt, with data from https://fred.stlouisfed.org/series/SP500
The S&P 500 is an index of 503 (there are currently 503 stocks in the index, but this number varies from time to time) US stocks that is generally considered to be a good representation of the US stock market. The chart above shows what the S&P 500 has done since the beginning of 2019. You'll notice that it has grown a lot since then, but there's one other observation that I think is even more important for investors to take note of—it has moved remarkably fast in recent years. There have been three large drops in the market over this period of time and each have been followed by periods of significant growth. The blue circles are the drop in the market prior to COVID in early-2020 on the left and on the right is the drop on tariff news in March/April of this year. In both cases, the market fell extremely quickly but also rebounded very quickly. When the market falls, it is very important for investors to remain positioned to benefit from the growth that often follows. Given the speed that the market is moving at these days, that has never been more true than in recent years. This is exactly why we preach that the right approach to investing is to stay the course—so that our clients are in the market ready to reap the growth when it suddenly (and often unexpectedly) comes.
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