Chart of the week

The wave of positive economic surprises seems to peter out

We have been arguing for some time that the optimism prevailing in financial markets might take a hit sooner or later. Surprise indicators can assist in measuring whether markets see the glass "half full” or “half empty”. Since the U.S. election, a wave of optimism has lifted many markets to new record levels. Especially sentiment indicators have gone up strongly, beating analysts’ expectations by a wide margin, and the equity market has matched positive surprises with rising prices. Currently, however, after some disappointing economic reports, and with first quarter GDP numbers likely to be weak, economic surprise indicators have come off sharply. This also increases the likelihood of a setback in equity markets: David Bianco, our Chief U.S. Equity Strategist, now thinks that a 5% dip from recent tops is well possible.