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PPI and Market Performance

Posted By Barry Ritholtz On April 20, 2005 @ 6:41 am In Economy,Markets | Comments Disabled

Another timely and relevant observation from Chart of the Day [1]:   On Tuesday, the producer-price index (PPI) for finished goods in March rose 0.7%. The PPI is now 4.92% higher than it was one year ago and significantly higher than the current 4.20% yield of the 10-year Treasury note.

Chart of the Day reports that while there have been some reports that
are predicting a slow down in global economic growth, today’s chart
illustrates that producer prices continue to rise at an above average
pace and that has tended to correlate with a struggling stock market.


click for larger chart
Ppi_20050420 [2]

Ppi_20050420b_1 [3]

sourceChart of the Day [1]


In the 70s, high PPI clearly correlates with weak stock performance.
Same in the early 1990s, although the underperformance in 1990/1991 was
not nearly as awful as the 1970s. 

The PPI rise in 2000, while correlated with a struggling stock
market (to say the least!), was likely not the cause of the subsequent
market collapse.

The question now arises: Is the recent  rise in PPI most analogous to the 1970s, the early 1990s, or 2000?



Chart of the Day [1]

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/04/ppi-and-market-performance/

URLs in this post:

[1] Chart of the Day: http://www.chartoftheday.com/20050420.htm?t

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/ppi_20050420.gif

[3] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/ppi_20050420b_1.gif

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