Surprise!

The Citi Economic Surprise Index led the correction; now what?

As we noted for all too many months in a row in NFTRH, the CESI had been on a gross divergence to the S&P 500. That gap, as measured by SPX technicals, is now closed. Indeed, the data do not include today’s big GDP surprise. Interesting, and on the face of it, not bearish. From Yardeni.com:

But the negative divergence persisted for a long time before the stock market finally gave in. So positive data, if applicable and if the GDP is a decent guide, will probably take a while to get factored as well. You know the market; they say it looks ahead, but that is mostly a joke.

From another angle, CESI still had not been factored by stock analysts projecting the S&P’s forward P/E. But that was as of a week ago. More damage to stocks since then has probably got them scrambling to look more right with the market. In other words, I’ll bet the red line would be lower today.

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