2022 was a year of bad expectations met – and even exceeded...
Everyone expected inflation to rise last year. But the pace was far worse than anyone thought possible. Similarly, a stock market decline was expected. But the fall was more painful than anyone was ready for.
The good news is that in 2023, the opposite story is playing out. Companies are beating earnings estimates, helping to drive stock prices higher.
Economic data is outperforming, too, according to a specific index. It recently hit a key level. And history shows stocks could see 15% gains over the next year as a result.
Let me explain...
With so much economic data available, it's hard to know what's what. And once you think you've finally got a handle on it, telling the difference between performance and expectations adds another layer of complexity.
Fortunately, the folks at Citigroup (C) do the hard work for us. The company tracks dozens of economic data releases and looks at whether they beat or fell short of analyst estimates. Then, it builds its findings into the Citigroup Economic Surprise Index.
This daily index reads zero when the economic data is in line with expectations. A reading above zero means outperformance in the data. And below zero means underperformance.
The index spent much of 2022 sitting in negative territory. Economic data underperformed expectations last year. But now, that has changed. In recent weeks, the index hit historically high levels. Take a look...
The Citigroup Economic Surprise Index jumped above 75 earlier this month. That's the highest reading we've seen since March 2021. And it's a rare level.
We've only seen five other new index readings above 75 since 2010. And according to history, buying stocks once you hit that level is a smart strategy. Take a look...
There's no doubt about it, stocks have been a winning investment over the past 13 years. We've seen annual gains of 10.9% since then. But you can do much better by buying when the Economic Surprise Index hits an extreme.
Similar setups have led to 6.3% gains in three months, 6.9% gains in six months, and 14.7% gains over the following year. That's solid outperformance. Even more, stocks were higher a year later in every case.
It's refreshing to see the economic data beat expectations again – especially after last year's pain. The economy is humming along and improving. And today's "better than expected" results are great for investors.
This is one more reason to be bullish right now. And it's why I continue to recommend owning stocks as they march higher.
The S&P 500 is marching closer and closer to new all-time highs. It's a feat no one would have thought possible at the beginning of this year. And importantly, the gains are likely to continue... Learn more here.
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