Leading index → World stocks

Common explanation (Knock-on · same direction): Strong global economy → company profits everywhere → world share prices.

This issue: Leading index at 42 (neutral), World stocks at 72 (warm) — at least one is in the neutral range (40⁠–⁠60), so we make no call this issue.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

Leading index: Now 100.14. World stocks: Positions of 20 national stock markets, weighted by market value 72.

Tests

Does this link hold up?

Common explanationStrong global economy → company profits everywhere → world share pricesSource: Federal Reserve Board, “FOMC Minutes, September 20-21, 2022” (2022). The minutes describe a single period and stock markets outside the US; stock prices are also often part of leading indexes, so the two may influence each other.
Tested against our dataAgreement between the positions of Leading index and World stocks (3-month lag), measured in the direction of the common explanation: +0.08. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 33 of 45. In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.Not visible in our data
Periods when it did not holdAcross 45 5-year periods, out of step in 1976⁠–⁠2000.

History

The two lines, overlaid

Data: Organisation for Economic Co-operation and Development (OECD), Composite Leading Indicators; Positions of OECD national share price indices, weighted by World Bank market capitalization (calculated by this site). Positions: our calculation.

Leading indexWorld stocks

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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