S&P 500 Index Sensitivity to US real GDP

Is this the most important chart for US equities?

It might not look like much but the regime just shifted.

What is this chart ?

It shows the change in the S&P 500 in % from a 1 daily standard deviation *rise* in US real GDP growth, holding all other factors constant (I.e the sensitivity of SP500 to US real GDP)

This was bobbling around in negative territory ("bad news is good news" regime).

Now it has turned positive ("bad news is bad news")

[How is it calculated? Well it is NOT a correlation. it takes all macro factors together, analyses how they explain SP500 variance and then apportions explanatory power among the factors which are all de-correlated, normalized and de-trended in advance. ]

1- US real GDP is weakening

There are many indications that US economic growth momentum is stalling.

Just when equities like stronger growth.

US real GDP nowcasting is down from 2.25% Q2 to 1.10% in Q3.

Euro Area is already negative for Q3.

Add it all up and the implication is rising odds of equity weakness if economic growth keeps slowing.

Not only that, in my next post, I will set out how if you take all key macro factors together, the macro warranted value of the SP500 is now falling for the first time in months.

Under the noise, the patterns and independent relationships are shifting

US equities now vulnerable to weaker economic data reversing what we saw earlier in 2024