Personal Wealth Management / Expert Commentary

Fisher Investments Reviews Economic Indicators You Should Watch in 2024

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher takes a closer look at which economic indicators investors should—and shouldn’t—follow.

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher takes a closer look at which economic indicators investors should—and shouldn’t—follow. According to Ken, famous indicators, such as the Leading Economic Index (LEI) or yield curve, aren’t as predictive as they once were because the market pre-prices widely known information. Therefore, Ken thinks investors should pay attention to less-discussed indicators, which typically have greater surprise power.

For example, Ken believes bank lending data is important to follow. He says investors wrongly assumed rate hikes would hurt lending in 2023. But because banks’ deposits barely budged, lending remained healthy and helped support the economy. For 2024, Ken believes elections are important to watch. In the US, Ken discusses why markets tend to favor Republican candidates in an election year and Democrats in an inaugural year. Globally, Ken is looking to ensure political gridlock remains—regardless of election outcomes—as stocks prefer when legislative risks are low.

Transcript

Ken Fisher:

So, I always tell people what I think the future holds. I'm right sometimes and wrong sometimes. But then people ask me what should they watch in terms of economic indicators to figure it out for themselves. And this gets a little bit more tricky and complicated because there's so many things you might watch. And in reality, at any given point in time, the things that are most important to watch are almost certainly not the ones that are getting the most attention. And I want to talk about that for just a second.

If you just go back to 2022-2023, people would watch well-known, famous indicators like the Leading Economic Index series (which was steadily negative) or the inverted yield curve (a legendary item that has historically often forecast bear markets and recession) and found that they didn't work. And one of the reasons, not the only reason, but one of the reasons that they didn't work is because everybody was focused on them. Therefore, the issues about them were so widely known that they were pre-priced. That's what the market does really, really effectively.

The reality of what to watch that's most telling, are ones that people don't pay much attention to. Because they're the ones that surprise people. That's the way markets work. It's surprise that always gets them. One of the ones to watch is one of the ones that people should have watched in 2023 that they didn't really. And you can see this during the so-called banking crisis. And when I say crisis, I spell that C-R-Y-S-I-S.

The fact of the matter is, they all said that as the central bank hiked fed funds rates that would push up Treasury bill rates and push up other short terms rates and push up banks' cost of deposits and make the banks stop lending. In fact, that did push up U.S. Treasury bill rates, but it had an only minuscule effect on the cost of bank deposits to banks. And so therefore they didn't really kill their lending practices. The important feature always to keep an eye on that few do, is what's the growth in loans? Not one particular type, but all loans. You can see that every Friday, based on Saint Louis Federal Reserve data online —you can watch that yourself.

The other one which I wrote about in my 1987 book, The Wall Street Waltz, is look for a pickup in unemployment of one full percent. The reality is, if you see a pickup of 1% in unemployment—in the official unemployment rate—that almost always tells you that you're close to an inflection point to buy. When most people will think it's an inflection point to sell. Why? Because the stock market itself is a leading indicator. It will have been falling before then. And if you've missed that, this is the one that says you're really close to the bottom. Maybe not weeks to the bottom, but within a month or two of the bottom for sure.

The other feature to watch in 2024, of course, is—and I do believe this is an important one, and I think it's causal—is what happens with the presidential election, and I'm just going to make a point. People tend to think that a Republican president will be more pro-business, more pro-marketplace, and that a Democrat president will be more anti-business, pro-regulatory, pro-big government. Now, if we just take those assumptions for a second, what tends to happen then is in a presidential election year, as the year progresses, if the Democrat wins the market pre-prices that because it somehow kind of knows. And the stock market doesn't do as well out of fear that he will be anti-business, pro-big government, pro-regulation. If the Republican wins, the market tends to get more exuberant in the election year about how it is that that president will do in pro-business ways.

But here's the tricky part. When you flip into the inaugural year, just a year from now, those two reverse. Almost like magic. Not always but almost always. The first year of Republican presidencies is not always, but is almost always, a negative year. Because they come in with high hopes and presidents never get as much done, for good or for bad, as those who hope they'll do well or fear they'll do badly expect of them.

If it's a Democrat, they can't be as bad as people fear. Democratic first years have categorically been very good. It's in the election year that the Democrat presidency dampens returns from expectations that they're anti-business. So, as the year progresses, I'd look to see is it the Republican that's leading? Probably Donald Trump. Is it the Democrat that's leading? Probably Joe Biden. And, if that's the case, that's going to tell you a bunch about how the back part of 2024 goes. That'll flip flop when you get to the inaugural year. It's a really telling indicator that nobody really much knows about, and I'll be talking about that as 2024 progresses and the election proceeds.

The fundamental feature also to look for is in 2024 we have a monstrously large calendar of foreign elections. And watching those foreign elections to see if it's continuation of global gridlock, or if it breaks in one direction or the other, will have a lot of impact. Either direction that it breaks would be bad for the stock market. Remaining gridlock, globally, would be good for the stock market. These are just a few of the indicators.

But let me go back to my opening comment. The most important thing is to look for indicators that other people aren't overly focused on. And as soon as you see people overly focused on some indicators, and they always are on some, you can just kind of ignore those. Those have mostly been pre-priced. And instead think of any and all of the indicators that nobody talks about and look for something extraordinary happening among them. Thank you very much for listening to me.

Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

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