LPL Financial Corp., the largest independent broker/dealer in the U.S., released Monday, April 26, the first one-year update on the performance of its Current Conditions Index (CCI). The CCI is designed to provide retail investors and their advisors with real-time insight into what LPL calls the “true underlying health” of the economy.
The indicators of the CCI for the second half of this year are not as pessimistic as the mass of data suggests, but as the Fed spread widens and the effects of government stimulus fade, the CCI will downshift from ‘growth’ to ‘slow growth.’
The index excludes the many indicators that lag or lead the economy. Instead, the weekly tracking tool includes 10 key indicators, frequently updated, that together provide a snapshot of where the economy is at any given moment.
The CCI uses initial claims filed or unemployment benefits, Fed spread, credit spreads, retail sales, shipping traffic, business lending, the Vix measure of volatility, money market asset growth, commodity prices, and mortgage applications.
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The index then tallies these results and tracks how closely the economy is aligning to areas labeled as strong growth, growth, slow growth, contraction and crisis scenarios.
Jeffrey Kleintop, executive VP and chief market strategist for LPL, said in a statement, “Too many retail investors and their financial advisors are overly focused on lagging indicators, all of which are too infrequent and volatile to provide actionable insight that delivers results. By this same token, ardent stock market watchers are over-emphasizing something too heavily fueled by the often over-reactive emotions of its participants, as demonstrated by the first quarter 2009 investor panic that temporarily brought the major market indices to historic lows.”