US stock market excludes possibility of recession — The Leuthold Group

According to a study by The Leuthold Group, the US stock market seems to be ruling out the risk of a recession in the country. Traders' actions indicate their confidence in the further growth of the American economy.

The analysts' conclusion is based on the ratio of cyclical and defensive stocks in the S&P 500 index. This is a key indicator that compares sectors that are most sensitive to economic fluctuations with more stable industries. The first group typically includes consumer products and commodities, while the second consists of utilities, healthcare, and essential goods.

Cyclical stocks usually trade at a discount during recessions because their earnings are more vulnerable to economic downturns. Meanwhile, the value of defensive assets remains rather stable, so market participants are willing to pay a premium for them.

In May, the ratio reached a record high of 1.19, indicating a 19% premium for cyclical sector stocks. In contrast, during the crises of 2000, 2008, and 2020, these stocks traded at a discount due to fears of a recession. According to The Leuthold Group experts, the US stock market is currently ignoring the threat of an economic downturn.