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If The Economy Is Tanking, Where’s The Stress?

CAMS Weekly View from the Corner – Week ending 8/23/2019

August 26, 2019

With the volatility in the equity market that began after the Federal Reserve’s most recent meeting on July 31st (whereby they offered the prospects of an on-going interest rate cutting cycle should not be expected in light of underlying economic health) we thought it timely to revisit a measure shared in previous Weekly View’s.

The St. Louis Federal Reserve Bank publishes a Financial Stress Index that gives us a sense of how much stress is registering in our economic system through various market based measures.

This Index is comprised of eighteen different market based measures in order to get a sense of how collective market participants are interpreting our current economic landscape via various market based relationships.

With the above notice the obvious focus here; markets and collective participant’s message through said markets.

Click For Larger View:

The above chart depicts the Stress Index dating back ten years for a broad perspective.  This Index is constructed in that zero is viewed as representing normal financial market conditions.  A value below zero represents below average financial stress conditions or higher than if above the zero line.

While we have seen an increase off historic lows the current level remains well below the zero line equating to below average stress.  Lower lows are not a requirement but on-going subdued stress levels will offer a landscape of economic health in the U.S.

The far right side of the chart shows that we experienced higher levels of stress in early 2018, late 2018 and in the spring of 2019 than what is registering currently.

With the ever building recession question in the media we thought it timely to share the message of this broad based market participant interpretation of our near-term economic outlook.

Importantly, this is not a gauge that offers an outlook for the near-term trading pattern of the stock market but rather is meant to gauge the economy and its prospects for growth or lack thereof.

Historically, market participants catapult this Stress Index to very high levels when they feel economic issues are imminent.  Currently, they are offering an on-going expectation of economic growth in the U.S.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio


H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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