Executive Summary
The May misery index report showed a slight improvement in April ― down -0.1%. While it has risen 6.9% in 2024, it has dropped -12.8% in the past twelve months. The inflation rate has been the main driver of a declining misery index in the last twelve months. In conclusion, stay invested in the S&P 500.
Why Investors and Traders Should Care About this Simplistic Economic Indicator!
The misery index is a simplistic coincident-to-leading economic indicator of job market health and living costs. It combines both to gauge consumer satisfaction with the economy. This economic indicator helps investors make smarter capital allocations as a high or low misery index indicates less or more consumption ahead; thankfully, the impact of the misery index is short-term, so investors should never use it for long-term investment decisions. It also represents how well the Federal Reserve (Fed) is doing, for the Fed has a dual mandate ― full employment and stable prices. By the end of this investment report, you should have a clear picture of the current state of the economy from the standpoint of the misery index.
Misery Index Chart Analysis
Key Points
The misery index was 7.3% in April, a -0.1% decrease from the previous month. YTD and YoY, the misery index increased 6.9%, and decreased 12.8%, respectively. Usually, the misery index rises higher leading to a recession, and depending on the cause ― higher inflation and unemployment, or both ― the Fed will react accordingly. The first Fed hike in Mar '22 was in response to the rising misery index that began in Mar '21; inflation was driving the misery index higher because unemployment was already trending down. The misery index started to rise when unemployment was 6% and inflation was 1.6%. The Fed began to raise interest rates when the unemployment and inflation rates were at 3.6% and 6.5%, respectively.
Investment Analysis
In aggregate, the job market and the prices of goods and services are slightly better than a month ago but significantly better than twelve months ago. This implies that the Fed is doing a great job of stabilizing prices. The latest unemployment and inflation reports were 3.9% and 3.6%, respectively. Therefore, the Fed must fix one of its dual mandates ― inflation. Once inflation moves closer to the target rate of 2%, the Fed dual mandate will have been completed. Based on the current misery index of 7.3%, we recommend staying invested in the S&P 500.
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