The U.S. economy is outpacing expectations for the first time since April. What that means for the stock rally is a matter of debate.
Citigroup U.S. Economic Surprise Index, a widely-used tool used to gauge how economic data matches up to expectations, has risen to its highest level since April in recent weeks. As The Wall Street Journal’s Morning MoneyBeat newsletter noted Tuesday, a number of better-than-expected readings on the economy–from third-quarter gross-domestic product to manufacturing activity–helped pull the index out of negative territory in October for the first time since spring.
Analysts at PNC Asset Management Groups said the index’s recovery– which indicates economic data is coming in above forecasts–is due in part to “analysts’ predictions becoming too dour in the middle of the year.” The recovery in global growth is also helping the index, PNC said.
More positive economic surprises have helped bolster the U.S. stock market since 2016, said James Paulsen, chief investment strategist at Leuthold Group, in a research note last week. Though the index doesn’t measure economic growth, positive readings can be an encouraging sign for investors who often respond to how data stacks up to expectations rather than the data itself.
Source: Wall Street Journal