CRED: Slow on Economy Road

By ClearRock Research January 3, 2020 Insights

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

CRED Reports

The ClearRock Economic Dashboard™ (“CRED”) rose to 52.5 in December, up from 42.5 in November. Increased business indicators as well as improved valuation metrics were the key reasons for the increase this month.

“Hard” business data and industrial production were generally flat. Business activity and optimism – as reported by the CFNAI and NFIB Indices, respectively – both rebounded from November’s decline. Consumer confidence was not shaken month over month, but growth in housing permits dissipated. Employment and inflation also remained unchanged month over month, but global indicators decreased overall. Spreads between Spanish and German sovereigns narrowed, while EU economic sentiment remained relatively unchanged.

Valuation metrics improved the CRED reading month over month. This was primarily due to a depreciation in the US Dollar and a narrowing of the high yield spread. The S+P 500 forward P/E ratio also ticked up slightly, continuing the sentiment that markets remain expensive. This has continued to widen our eyes to the inherent risk in the equities markets. As conveyed in the below table that tracks the monthly CRED readings over the last twelve months, CRED has remained within the range of 40.0-60.0 since last April. As a result, the current business cycle continues to show signs of a slowing economy, without much prospect for a noticeable move up or down in the markets.


Trailing 12-month CRED readings. Source: ClearRock Research

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. This 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.

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. It 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 also 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.

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Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. 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.

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

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Author ClearRock Research

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