WLI [public] and USLLI, USLMI, USLLII [not public] and S&P500 earnings

Excerpt from old ECRI piece on their indexes and stock prices says that WLI roughly coincides with the stock market: 101refugees.blogspot.c…

“ECRI’s U.S. Long Leading Index (USLLI) is designed to anticipate cyclical turns in the economy, but the USLLI does not contain stock prices. Because the USLLI has a longer average lead over the economy than stock prices do, peaks and troughs in USLLI growth typically anticipate peaks and troughs in stock prices.

Meanwhile, growth in ECRI’s Weekly Leading Index (WLI), designed to anticipate turning points in economic growth, has somewhat shorter leads than the USLLI, and may be used to confirm earlier signals of cyclical turns from USLLI growth.

Because stock prices are included in the WLI, the average lead time of WLI growth over turning points in economic growth is comparable to that of stock prices, though the WLI’s leads are more stable.

Cyclical turns in WLI growth have shorter leads than USLLI growth, but longer leads than stock prices, against growth rate cycles. Thus, in terms of the typical sequence of events, USLLI growth turns first, WLI growth confirms those turns, stock prices follow the turns in WLI growth, and finally, cyclical turns in economic growth follow.

ECRI doesn’t try to predict stock prices per se, but we can assess stock market risk. This risk is not a constant and really depends on where you are in the business cycle – an issue addressed by the USLLI and WLI.”

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S&P500 earnings have been heavily augmented by synthetic bank prpofits than to generous outlays by the taxpayers (the government giveaways) and by lax accounting rules. If such profitability were allowed to move to the private sector you would still see nice corporate gains (ex-banks) with the mildest of earnings improvement in the S&P500. 

I agree with Steve Hansen that earnings should be good and the economy will avoid any pitfalls in April but not because the economy is fundamentally strong. It is weak and employment is weak. As many economists point out, it takes over a year for employment to recover. So if you are looking for recovery look at techs, transportation, and distribution stocks to show improvement as goods cycle through the system. You can’t really watch healthcare, pharmaceuticals, or biotechs for fundamental recovery because, like banks, that is being manipulated by government forcing businesses to cover even greater expenses in that area. Sadly, that will now make employment recovery that much weaker. But we will survive through ever increasing productivity which is no consolation to those needing a job.