Chart of the Month
EBI (Evidence Based Investing) Perspective Advantage of the Quarter
EBI (Evidence Based Investing) Perspective Advantage of the Quarter
- While threats of a second or even future third wave of the pandemic persist, we no doubt are seeing signs of an economic rebound as state after state, and country after country, open up more parts of the economy and pent up demand relieves itself.
- Presently, of six macro indicators we watch, five have turned to favor stocks over bonds. Not long ago, only two of the six favored stocks over bonds.
- For instance, the Baltic Dry Index recently turned positive for stocks as it recently registered its highest reading in history. While the coronavirus has continued to whipsaw this indicator, this shipping rate indicator now favors stocks (is bullish for equities/economic recovery).
- The Central Bank Policy is another macro indicator. Global short-term rates are in a downtrend. PMI Breadth is a third macro indicator we watch. This indicator now favors stocks as the four-week change in countries with expanding manufacturing entered positive territory for the first time since March.
- The OECD (Organization for Economic Cooperation and Development) Leading Indicator suffered its worst monthover-month decline in its history during May. It recently returned to positive territory for the first time since March.
- The Global Market Breadth indicator is showing over 85% of global markets trading above there 50-day moving average. It remains favorable for stocks.
- Finally, the Stock/Bond Relative Strength indicator, which has a heavier weighting than the other five, is the only indicator favoring bonds. If stocks rally relative to bonds in July, this indicator could turn favorable to stocks in August.
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