• Other data points also suggest that the recession is in its later stages, such as the ISM manufacturing index, which has improved in six consecutive months (Figure 6).

Figure 6: ISM Manufacturing Data Has Improved In Six Consecutive Months

• In fact, at 44.8, the ISM index is markedly higher than December’s reading of 32.9 and above the average of 42.3 where the last 10 recessions ended, according to a study from Bespoke Investment Group (Figure 7).

Figure 7: ISM Index Above The Average Level Where Last 10 Recessions Ended

• Finally, there has been a notable uptick in the index of leading indicators – which includes 10 economic variables, such as interest rate spreads, real money supply, stock prices and consumer expectation—that is used by economists to help predict the business cycle (Figure 8). The index recently had its largest two-month consecutive rise since November and December 2001—which were the two months that followed the end of the 2001 recession.

Figure 8: Leading Indicators Show Best Two-Month Increase Since After 2001 Recession

While it is still too early to draw strong conclusions, the current earnings season is off to a promising start. And although there remain challenges and skepticism remains high, we are encouraged by stabilization/improvement in segments of the economy, earnings revision trends, and the ability for the S&P 500 to hold above the bottom of its trading range. For investors on the sidelines, we continue to recommend a dollar cost average approach into stocks and favor the more cyclical sectors of the market—such as Technology, Materials, Energy, and Industrials—which have traditionally performed well coming out of a recession.

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