Much has been made recently about the plunge in the Citi Economic Surprise Index and to be sure, Citi thinks that may be much ado about nothing.
More specifically, Citi thinks you’re “kinda sketchy” for even bringing it up.
That said, this chart is difficult to ignore:
Again, “difficult to ignore,” but if you want to ignore it – and by extension, if you want to get off Citi’s “sketchy ass people” list – Deutsche Bank is going to tell you how to go about being willfully ignorant.
Via Deutsche Bank
The strong correlation between data surprises and the S&P 500 in the recent rally have raised concern about the risk of a large pull back as data surprises turn negative. But equities have a strong positive trend over time, which reflects growth in earnings (or their macro counterpart real growth and inflation), while data surprises by contrast display alternating positive and negative cycles around zero.
While the correlation between the level of equities and data surprises in short periods can be strong as it has been recently, the longer the sample the weaker it is as the trend in equities dominates.