Stocks prices don't reflect the growing likelihood that the U.S. is sliding back into recession and instead are too focused on Europe, says John Hussman of Hussman Funds.
Many economic indicators are improving, including the Philadelphia Federal Reserve index of business activity for the mid-Atlantic factory sector, which jumped up 8.7 percent in October, far outpacing expectations.
However, the jump comes from a very weak September, when the index shrank 17.5 percent.
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"I continue to view economic evidence as consistent with oncoming recession," Hussman writes in a note to investors.
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"While there was some enthusiasm over the pop in the Philly Fed index to 8.7 percent, it’s useful to remember that the Philly Fed index also popped from negative levels."
Other indicators prompting stock-market investors to lower their guard include the Conference Board’s index of leading indicators, which is looking healthy mainly due to trading trends, such as investors shuffling portfolios to lower exposure to Europe, but not due to a fundamentally improving U.S. economy.
So watch indicators get worse, especially those that aren't as forward looking and confirm what has already happened.
"Suffice it to say that leading data is leading data, and there is typically a gap between the point that the leading evidence turns down decisively and the point where coincident and lagging indicators confirm the deterioration," Hussman writes.
Many experts insist that Fed Philly factory number points to further economic recovery, as any number above zero signifies expansion.
Still, it's clear the economy isn't booming.
"This is yet another number consistent with a slow-growing economy, but no recession," says Cary Leahey, a senior economist at Decision Economics in New York, according to Reuters.
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