CRED Data Points to Continued Resilience Late in the Business Cycle

By ClearRock Research February 20, 2019 Insights

The January CRED Report

The ClearRock Economic Dashboard (“CRED”) increased to 55.0 in January, its highest reading since September 2018. Improving stock market valuation

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

readings and a better interest-rate outlook were the key areas of improvement this month.  Specifically, the high-yield spread narrowed substantially as investor fears of a recession and a credit crunch waned.

Our business indicators remained unchanged. “Hard” business data (new orders and industrial production) decreased slightly. The biggest issue companies faced was a lack of supply of qualified workers, indicating a tight labor market and rising wage costs. Consumer confidence declined due to disappointing holiday retail sales. Housing permits remained flat, but the housing sector faces challenges that include increased property values, higher mortgage rates, and deductibility of property taxes for high-value homes due to tax reform. Nonetheless, last month’s CRED sees signs of global stabilization, pointing to a continuation of the current business cycle, even though we may be in its later stages.

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.

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.

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 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.


Author ClearRock Research

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