Wednesday, November 23, 2011

RUNNING OUT OF ECONOMIC SURPRISES?

"Here’s another hurdle the market doesn’t need right now. Citigroup’s economic surprise index is showing elevated levels. This is consistent with a market environment in which analysts have generally grown excessively optimistic about economic data. The data set is notoriously mean reverting as analysts overestimate and underestimate economic data. Readings at current levels are near the upper end of the historical range so we shouldn’t be shocked if analysts ratchet down expectations or economic data begins to disappoint.

Most alarming is the fact that my Expectation Ratio is showing similar signs of excessive optimism. The combination of the two lead to an environment in which analysts are universally optimistic about earnings AND economic data. That leaves the markets particularly susceptible to downside risks. Just another headwind the markets don’t need at a time when turmoil seems to be the theme day in and day out…"


at http://pragcap.com/running-out-of-economic-surprises