Alain Bokobza of the Société Générale Quant team, writes that their “Economic surprise indicator” suggests risky assets are now technically vulnerable:

“After undergoing a massive rally since last September, risky assets are now technically vulnerable: SG Quant sentiment indicator is close to an all-time high, economic revisions have rarely such a high percentage of upgrades, equity volatility is at a four-year low, the Canadian dollar is dear versus the USD and lastly inflows into equities reached $8bn last month, led by “panic-buying.”

This  economic surprise indicator is a measure of the deviation of economic data surprises, calculated as the difference between figures released and figures expected by consensus. Global Equities relative to Global Bonds: 3-month performance of MSCI World Index (in US$, in total return) divided by Barclays Global Bond Index (in US$, in total return).

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Economic Surprise Indicator

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Bonds no longer expensive vis à vis equities

1 & 3: time to switch out of bonds into equities
2 & 4: time to switch out of equities into bonds

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Source:
Don’t despair: correction of risky assets likely coming soon
Alain Bokobza, Roland Kaloyan, Arthur van Slooten, Philippe Ferreira
Multi Asset Snapshot, Société Générale Quant Group
Asset Allocation Strategy

Category: Markets, Quantitative, Technical Analysis

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7 Responses to “Soc Gen’s Economic Surprise Indicator”

  1. anilo74 says:

    The second indicator is the Citigroup Economic Surprise Index (CESIUSD on Bloomberg). There have been other 7 occasions when the CESIUSD breaked 50 since its inception in 2003 (last signal on Feb, 4, 2011 @ 1310,87). The S&P500 was positive after 37 weeks in 6 of that 7 issues. Also, in 5 of that 7 cases the S&P500 has gained at least 10% at some point during that time span. I think is too early to switch out from equities for going into bonds. The best moment to do that will probably be when a chart divergence between 10Y yield and economic surprises appears.

  2. Sechel says:

    Stocks are trading at CAPE ratios of around 24 while short duration bonds offer return free risk(at least based on real returns not nominal). Its a tough call, but the tail risk of stocks versus the guaranteed return of a treasury suggests the better bet is on bonds.

  3. socaljoe says:

    where is “5: time to switch out of both bonds and equities” ?

  4. Cdale_dog says:

    Has anyone looked at Build America Bonds yielding over 8%??? I own BBN, what do you think?

  5. the x-axis increments are too crude..

    how it matches to http://finviz.com/quote.ashx?t=TLT , as ex., is a Q: ..

    but, on the SWAG side of things, looks like a decent indicator..

  6. shawn.r.stevens says:

    The second graph’s Point 2seems to be pretty prescient in hindsight regarding time to switch into bonds. Also, bonds seems rather expensive at the moment as well. Prices could go up some from here but I don’t think they have too much room to run — yields seem too low for that.