Indexes For This Cycle
The Citi Economic Surprise Index is like the CNN Fear and Greed Index in that I usually disagree with its assertions. They are both overly sensitive to changes in the market. I may be biased when reviewing these data points because I always compare the extremes with the financial crisis. For example, in the correction earlier this year, the CNN index showed fear was extreme. When comparing the correction to a bear market, it seems ridiculous to think that's all the fear that can be in the market. However, I showed in a previous article that the index is a great one to fade based on market performance. This means to buy the market when the index is at extreme fear and sell it when it's at extreme greed. It's fair to override that index if you see extreme risk in the market similar to the mortgage crisis. That being said, not many indicators can adequately understand black swan events. It's unreasonable to expect such accuracy in data points.
In 2008, the market sold off sharply even after it was oversold. For me, beginning investing in 2007 has affected my thinking to the negative side. If you started investing in the late 1990s, you witnessed two massive declines in your trading/investing lifespan; this give you a negative bias. The worry that this bull market will end because cycles are supposed to be 7 years has been powering this bull market for the past 2 years. Bull markets are built on skepticism and bears are built on greed.
Extremely Low Citi Surprise Index In Europe
The Citi Surprise Index simply shows how results are coming in compared to sentiment. It's the combination of an economic rate of change indicator with a sentiment reading of economists. The current Citi Surprise index for America is 28.2 which is below the recent peak of about 90 in late 2017. You can see how this index appears sensitive because the economy was far from growing at a historically high rate in Q4 2017. That being said, for this current environment, that's about as fast as the economy can grow. The downside appears more ridiculous as the index was nearly -80 in the summer of 2017 when the economy wasn't that weak. I predicted it would soon rebound when I was reviewing the index back then.
