Leading Indicators -- Japanese History and Current US

n the last post, Our Man mentioned that when equity and bond yields diverged in Japan stock market performance became more tied to economic cycle.  As such, going forwards, leading indicators should have greater value in helping us think about and control our equity exposure.  

Japanese Equity Performance and Leading Indicators

 

As the shaded areas hint, it seems reasonably conclusive that the leading indicators seem like a helpful tool and it would be wise to strongly consider reducing exposure when the leading indicators appear to be topping out.

Now, clearly, Our Man is not unaware of the pitfalls of using the leading indicators (such as “how does one define topping out in real-time”) or suggesting that they be the sole determinant of one’s exposure (because that would be moronic!) but is merely suggesting they’re another useful tool in terms of thinking about exposures.

Why bring this up now?  Well, let’s look at what’s happening to the US Leading indicators:

This certainly looks like some form topping out to Our Man, which would suggest that at the minimum that the easy money has been made in terms of a pure directional move.