Chart of the Day: February 6, 2023

Is growth bottoming?

Today’s chart comes from

Raoul Pal

’s Global Macro Investor (GMI). I encourage you to check out his full post here.

GMI produces a Financial Conditions Index that has historically provided a tool for forecasting the direction of the ISM Survey. The ISM is a leading indicator of US economic growth.

Figure 1 shows the relationship between the GMI Financial Conditions Index and the ISM. The Financial Conditions Index leads the ISM by approximately 9 months, providing us with a “crystal ball” for use in building projections for US economic growth.

Figure 1, Source: @RaoulGMI

Currently, GMI’s FCI has the ISM bottoming out sometime in Q1 or early-Q2 of 2023. This is a positive sign for US growth and financial market expectations as currently we see the largest % of economist ever predicting a recession over the next 12 months. The recession may occur, but due to the recession becoming a consensus view, there’s a non-zero probability it’s already been discounted by markets.

Combine today’s chart with the Charts of the Day from 2/1, 2/2, 2/3, and 2/4 and all of a sudden a decent case for a sustainable rally in risk assets can be made.

— Brant

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