As readers of the Morning Brief know, the U.S. economy has been exceeding expectations left and right.
But a few pieces of Wall Street commentary over the last several days have noted that bursts of economic activity on this scale historically put the market under some pressure.
Which could set the stock market up for a correction of sorts in the months ahead.
As my colleague Brian Sozzi highlighted in a piece on Yahoo Finance on Tuesday, Deutsche Bank’s Binky Chadha notes that the recent spike in activity measures from the Institute for Supply Management — which the Morning Brief covered here and here — suggest a flattening out or peaking of activity in the coming months. And after accelerations higher, these moderations in economic activity have typically been accompanied by modest declines in the stock market.
“Growth (ISM) typically peaks around a year (10-11 months) after recession ends, right at the point we would appear to be,” Chadha writes. “A majority of historical peaks in growth (two thirds) were inverted-V shaped, while the rest saw the ISM flatten out at an elevated level. The S&P 500 sold off around growth peaks by a median -8.4%, but even episodes which saw the ISM flatten out rather than fall, saw a median -5.9% selloff.”