The last week or two has seen Citi's economic 'surprise' indicator (ECO) take a decided turn for the worse. At Friday's close, the index that tracks not just absolute performance of the major macro prints but their relative performance to expectations, had hit a three-month low. Since the top in the S&P 500 in late 2007, the 3-month rate-of-change has shifted significantly negative four times - and each of these times has been followed by a significant downturn (or change of trend) in the S&P 500. As of Friday's close, the ECO index's rate-of-change shifted negative (its most negative in 5 months) and has signaled a quite intriguingly divergent lower high (from Q4 2011' previous peak) compared to the S&P 500's higher high. Is the short-term drop in ECO due to 'cliff' indecision? Or will earnings season be the market's catalyst to realize the changing macro landscape?
Late 2009 saw a period of very unusual absolute stagnation in macro data (while QE1's liquidty lifted stocks) but once the rate-of-change pushed consistently negative, the top was in for stocks in mid 2010.
The blue dotted-line indicates the lower high that macro data has shown during this latest cycle (as opposed to higher high in equities)