Druckenmiller’s favorite predictors
Stanley Druckenmiller tracks a lot of indicators to gauge the health of the economy. While speaking at the Economic Club on June 3, he said the macroeconomic indicators are not good at predicting the future path of the economy. He stated that by far the best predictor he knows of is the inside of the stock market. By this, he means the cyclical companies within the stock market. He particularly likes trucking and retail companies to provide a lead on the timing of economic cycles.
Druckenmiller: Investors should be cautious
In this context, he pointed to three major things:
- The S&P Retail Index (XRT) is down 24% since the peak hit in August 2018 while the broader stock markets are down only 7%-8% in the same period
- The Russell 2000 (IWM) is down 15% from its recent peak
- The S&P Metals and Mining Index (XME) is down 20% from its high
He said that the above-mentioned indicators are trading near their relative 52-week lows. So, he said the inside of the stock market (SPY) is not saying we are in a recession but it does mean that investors should be cautious right now.
Druckenmiller on corporate profits peaking
Druckenmiller talked about another indicator. He said he has never seen a recession before corporate profits peaked. He added that in the first quarter, the corporate profits fell for a second straight quarter. He said given the margins, tariffs, and labor situation, it is difficult to fathom that it wasn’t the peak in corporate profits. He thus concluded that there are a lot of warning signs out there and investors should keep their eyes open.