LOS ANGELES--(BUSINESS WIRE)--Lido Advisors today debuted its Recession Meter, which measures key market indicators to provide insight about today’s economy. This month, the Recession Meter entered a new and dangerous level similar to previous recessions. The Lido Recession Meter has been back-tested and has proven to provide at least a two-month warning of all seven recessions since 1973.
“We cannot conclude that a recession is imminent, even though the evidence suggests that there is a greater risk of recession,” said Jeff Garden, senior analyst at Lido Advisors. “Today’s financial markets afford investors a multitude of alternatives to diversify a portfolio, reduce risk and optimize returns.”
The Lido Recession Meter compares current market conditions with the past recessions that have hit the U.S. The firm has been privately using the Recession Meter to guide its high-net-worth clients. Lido Advisors’ quantitative methodology addresses one key question – “Should we be getting nervous about the economy?” When the Recession Meter reaches its current red flag level, the answer is yes.
The Lido Advisors Recession Meter is not a tool for timing markets, rather it is an economic red flag indicator for investors. Unlike other recession research and predictors, the Lido Advisors Recession Meter aggregates five financial driver scores to compare today’s climate with historical data to alert investors to potential dangers.
- Broad Market Valuations – The Cyclically Adjusted Price to Earnings Ratio (“CAPE ratio”) evaluates earnings over a longer period of 10 years, which is a better representation of longer term earnings power and more stable than current or historic P/E ratios. Valuations matter to the stock market more than any other factor over time.
- Yield Curve Slope – Yield curve slope has been the most successful in indicating an impending recession. It is the difference between the yield on the U.S. 10-year treasury and the U.S. three-year treasury. The slope indicates investor expectation on higher or lower interest rates in the future, which can signal an economic slowdown.
- Inflation – The Consumer Price Index (“CPI”) is a great way to measure inflation because it tracks the retail price changes of about 80,000 goods and services purchased by consumers. Demand-pull inflation is one of the clearest signs of an overheating economy because prices rise due to the demand for goods and services outweighing supply. This is unsustainable.
- Unemployment – The unemployment rate is defined as the percentage of unemployed workers in the total workforce. The economy is likely nearing a peak when unemployment is low relative to historic levels. This is viewed as negative information based the natural rate of unemployment.
- The Institute for Supply Management Purchase Manager’s Index (“ISM PMI”) – PMIs are economic indicators based on surveys of purchasing managers in the manufacturing sector of the economy. PMIs assist in understanding current economic conditions. The ISM considers new orders, production, employment, suppliers deliveries and inventories into its PMI. The ISM is included as an economic sentiment indicator.
About Lido Advisors
Lido Advisors utilizes experience, creativity and independence in order to grow, maximize and protect our clients’ assets. Meeting and exceeding wealth management and legacy planning goals is our passion and focus. At Lido, we consider the economic and market cycles, the unknown, and tax reform to be potential opportunities. Given our knowledge in various disciplines and an extensive network of industry professionals, we have the power to analyze complex situations and develop practical solutions personalized for each client.
For more information about Lido Advisors, please visit its website at www.lidoadvisors.com.
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Lido Advisors is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Lido Advisors and its representatives are properly licensed or exempt from licensure. This is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Lido Advisors unless a client service agreement is in place.
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