I tweeted that an indicator that had historically forecast a US recession is now on

Q I get: Should I now steer clear of US markets?

In India the story is that the economy is booming & hence the mkts look great

But the economy & markets are different animals

A thread 🧵 (1/n)

There is no one to one correlation between the economy of a country and its stock market - more so not in the same time frame.

At the minimum,there are leads and lags.

Plus there are many other adjustments to be made.

Simplistic predictions don't work. Neither do stories(2/n)

The S&P 500 is down for all 3 quarters in 2022- this has happened only 4 times in the last 50 yrs

Both US stocks & bonds are down substantially in 9 mths which has happened only 3x in 100 years

So the question for US is how much of the bad news is already in the price? (3/n)

Probabilistically speaking, it appears more than likely that most of the bad news is already in the price especially for stable,traditional businesses
The impact of the interest rate rise will, of course, be higher for companies where profits & cash flows are still far away (4/n)

Therefore one can say in a sense that in the US, the stock markets have been a leading indicator of the bad news that is still unfolding in the real economy.

Go back to March 2020: If someone had told you that this would be the impact of the pandemic (5/n)