In an economic landscape where the signals seem to contradict each other, we’re witnessing a stark divergence between US equities and the Heavy Truck Index (HTI) cycle. This isn’t just a minor discrepancy; it’s a glaring sign that something fundamental might be shifting beneath the surface of our economy.
The Heavy Truck Index, a traditional bellwether for economic health, tracks the demand and production of large commercial vehicles. Typically, when the HTI climbs, it’s a clear indicator of an economy in gear for growth, with businesses investing in more transport capacity to handle increased production and sales. However, this cycle appears to be out of sync with the soaring US stock market, raising questions about the sustainability of the current market rally.
Is this time really different? History might suggest otherwise. Drawing parallels to the market conditions post-Reagan’s 1980 election, we see a similar pattern where the stock market and economic indicators like the HTI diverged significantly. Back then, the divergence eventually led to a market correction as reality caught up with market exuberance. This time, the pattern seems to be repeating, hinting at the possibility that the market might be overvaluing the economic health based on stock performance alone.
Adding to this concern, the New York Post reports a dramatic increase in US credit card loan defaults, signaling that American consumers might be financially stretched beyond their means. This news comes at a time when the yield curve, another economic indicator, has been showing signs of inversion and then un-inversion, traditionally a precursor to economic slowdowns or recessions.
The yield curve’s behavior, coupled with the HTI’s current stagnation compared to the buoyant stock market, paints a picture of an economy at a crossroads. The stock market, buoyed by tech giants and speculative investments, seems to be living in a different reality than the one where businesses are hesitant to invest in heavy trucks, perhaps due to caution about the economic outlook or rising operational costs.
If history is any guide, this divergence could be the calm before the storm. The “dam” referred to in the New York Post might not just be about credit card defaults but could symbolize the broader economic stability teetering on the edge. With US equities soaring while traditional economic indicators like the HTI lag, we might be looking at a market bubble inflated by low interest rates and speculative fervor rather than genuine economic growth.
Sources:
https://x.com/i3_invest/status/1877460342948631033
https://x.com/McClellanOsc/status/1877473812339634376
https://x.com/bravosresearch/status/1877400278141452410
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