Market mayhem may be on its way, as per a chart from the Economic Cycle Research Institute (ECRI). The chart shows that global industrial growth is at its weakest since the financial crisis. While the ECRI’s US Long Leading Index (USLLI) has been rising, the Global Industrial Growth Coincident Index has been falling, indicating a serious divergence. This anomaly typically precedes market volatility.
A similar divergence was observed in 2000 and 2007, right before the dotcom bubble burst and the global financial crisis, respectively. The ECRI believes that the current situation could be a prelude to another downturn.
The ECRI’s indexes have a good track record of predicting economic trends. In 2000, the USLLI fell sharply before the stock market crash, while in 2007, it started to decline about a year before the recession.
The situation is further complicated by the fact that central banks are running out of tools to stimulate economies. Quantitative easing and negative interest rates have not been as effective as hoped, and there are concerns about a possible debt bubble in China.
The ECRI’s warning comes amidst a volatile period for global markets, with concerns about China’s economic slowdown and the potential for a US interest rate rise. The chart suggests that investors should brace themselves for more market turmoil.
Go to source article: http://www.telegraph.co.uk/finance/personalfinance/investing/11891064/The-chart-that-shows-why-more-market-mayhem-is-on-its-way.html?WT.mc_id=e_DM52099&WT.tsrc=email&etype=Edi_Inv_New