"With the release of the OECD’s leading indicators at the start of March we saw that they had already peaked at the end of 2017. The publication led to a revision of previous values, which is why the peak can only be seen now," writes Chief Strategist at Sparinvest, David Bakkegaard Karsbøl, in his monthly comment for April.
This means we are now moving from the expansion phase (where the leading indicators are high and rising) to the deceleration phase (where the leading indicators are high and decreasing) in the business cycle. The shift has significant implications for the returns we can expect in the various asset classes.
The stock market has already reacted to the bad news by falling sharply since January. MSCI World (EUR) has fallen by 6.3% since the end of January. The bond markets are also marked by a greater fear of the future, and the sharp rise in interest rates in early February has now been replaced by a fall in interest rates.
The above development is a textbook case of what happens when the leading indicators have peaked. The development is also further supported by Trump's trade policy initiatives.
"Due to the fact that the leading indicators have peaked and we are now in a deceleration phase, investors should reduce their exposure to shares," conclude the Chief Strategist at Sparinvest.