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Data Defies Returns

October 24, 2016

I’ve said it before – twice actually – but I must ask again. Why is the market going up and up when the hard economic data indicates that the economy should be in or near a recession?

Considering the following, the returns become even more unbelievable. For instance, private sector GDP is up a shade more than 1 percent, year-over-year. Since the late 60′s, such levels meant a recession was happening or about to occur.

Industrial production has been trending downward since late 2014, and historically speaking, long declines don’t happen outside of recessions. Additionally, the past two years of capital spending has declined, which has almost always coincided with a recession. But maybe these are extraordinary times indeed.

Want more recession signals?

New home building permits have trended negatively over the last 12 months. Same with exports. Year-over-year change of industrial sales is negative. Tax receipts are down. Since February, the markets have pointed towards improvement. But nearing the end of 2016, are we seeing it? Maybe it’s because we’re in an election year. And what will happen if rates rise?

Given the context, I’m not sure there’s a winning outcome here overall.

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