S&P 500: Business, Liquidity Cycles Support a Continued Uptrend

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Stocks Analysis by Chris Yates covering: S&P 500. Read Chris Yates's latest article on Investing.com

Leading indicators of liquidity growth and economic growth suggest both cycles should continue higher into the first half of 2025.

As we shall see, the outlook for the business cycle and liquidity cycle appears robust over the short to medium term, but the outlook for corporate earnings looks less robust over the medium term. While it is true lead indicators are not universally pointing higher, none are suggesting any sign of an imminent recession or major slowdown. Overall, this is a supportive economic backdrop for equities over the medium term.

We can see this outlook confirmed via a number of individual lead indicators of corporate earnings, nearly all of which are starting to trend lower as we can see below. Some measures are reaching extremes, such as Asset Manager positioning, margin debt growth and the corporate insider sell/buy ratio, but most measures are only at average levels. Most importantly perhaps is the overall speculative positioning in equities (which includes theCurrent positioning dynamics are not what you generally exhibit at notable market tops. A number of other longer-term sentiment measures are confirming this notion, such as the Goldman Sachs Sentiment Indicator.

In addition, a short-term sentiment measure that has just turned bearish is Morgan Stanley’s Market Sentiment Index, which suggests we may see further short-term volatility in the market.

 

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