CRED: “The Show Goes On” But the Global Economy is Slowing

By ClearRock Research July 31, 2019 Insights

July CRED Report

CRED

CRED “Speedometer” on a scale from 0 to 100.

The ClearRock Economic Dashboard™ (“CRED”) decreased to 47.5 in July, down from 57.5 in June. Stock market valuation readings and slowing business indicators were the key reasons for the decline this month.

“Hard” business data were mixed as new orders increased marginally, but industrial production decreased. Reduced business optimism, a tight labor market (lack of qualified workers) and persistent rising wages, contributed to a lower CRED month-over-month reading. Retail sales were flat and housing permits declined, while inflation ticked up to 2.1%.

Stock market valuation readings decreased last month based primarily on the fact that the S&P 500 Forward P/E ratio has increased to

Rate Cuts

Charles Schwab Chief Global Investment Strategist, Jeffrey Kleintop, tweets about the global chain reaction of a U.S. Fed rate cut.

a level not reached since this time last year – indicating that the markets continue to remain expensive. The Fed lowered the target Fed Funds rate by 25 basis points for the first time since 2008 with the expectation of additional rate cuts in 2019. This prompted a global chain reaction as 13 other countries followed suit and cut rates in the subsequent week.

EU economic sentiment declined slightly, and the Spanish/German sovereign spreads remained unchanged. Chinese manufacturing was flat at 49.7 vs. 49.4 in June, but the underlying data show a slight deterioration in business conditions and softened consumer demand. Despite heightened consumer confidence and financial markets near all-time highs within the current business cycle, CRED is flashing further signs of a slowing global economy.

About CRED

The ClearRock Economic Dashboard (“CRED”) is a proprietary financial tool we have built and refined over the past 10 years.  CRED is a monthly barometer designed to measure the strength of the global economy. It synthesizes twenty financial data points to produce a monthly diffusion index of economic health.  We represent the index using a “speedometer” with a scale of 0 to 100.

A reading of 50 is neutral, which indicates that the economy is growing at its long-term historical average. A reading below 50, signals that the economy is slowing, which may lead to a contractionary phase in the economic cycle. Conversely, when CRED gives us a reading above 50, the economy is growing faster than its historical trend rate, and is likely expanding.

CRED TTM

Trailing 12-Month CRED Readings. Source: ClearRock Research.

We use this tool to answer a simple question: where are we within the current business cycle? Answering this question is a core part of our investment management process and is an important factor in driving our asset allocation decisions. We believe that getting the big picture right is key for achieving long-term portfolio growth and, most important, helping our clients reach their financial goals.

It is important to note however, that CRED is only one of the many resources that help our Investment Committee make more thoughtful decisions.  Our deep industry and investment experience, coupled with our network of external independent research sources, we believe has allowed us to build a sound, disciplined, and repeatable investment process. To learn more about our investment philosophy, please visit our website.

Disclosures

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from ClearRock Capital LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

The material in this presentation is based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. The material provided herein is for informational purposes only. Sources: Bloomberg, Federal Reserve

Please remember to contact ClearRock Capital LLC if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please also advise us if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. Please refer to ClearRock Capital’s ADV Part II for more information.

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Author ClearRock Research

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