10 Charts Wall Street Is Obsessing Over

In a new report, Cornerstone Macro analyst Francois Trahan discusses the firm’s 10 most requested charts among Cornerstone clients. After looking at the updated charts, Cornerstone remains bullish on the market, despite the recent plunge in investor sentiment. Here’s what they see in the charts.

1. Percentage Of Countries With A PMI < 50

The first chart shows the number of countries with a Purchasing Managers Index (PMI) under 50. Countries with a PMI over 50 have expanding manufacturing sectors, while a PMI under 50 indicates contraction.

2. NTM P/E Vs. Market Return

This chart of forward P/E ratios versus market returns surprises many Cornerstone clients. The years that the market produces the highest returns are years that the market books moderate earnings growth and strong multiple expansion. In the years with the strongest earnings growth, multiples often compress and the market returns are subpar.

3. S&P 500 EPS Vs. P/E Breakdown

Gains earlier in 2015 were driven by multiple expansion, but recent gains have been driven more by earnings growth, which boosts investor confidence.

4. Early Cyclicals

Early cyclicals are stocks that respond immediately to changes in interest rates, inflation trends and commodity prices. At the moment, these early cyclicals continue to point higher around the world.

5. Macro Forces

This chart indicates how much the movement of the market influences individual stocks versus how much stock-specific forces influence share prices.

6. Number Of Days Since Correction

There has only been seven other times since 1930 that the market has gone this long (906 days and counting) without at least a 15 percent correction.

7. Consumer Free Cash Flow

Cornerstone’s proprietary Consumer Free Cash Flow metric incorporates consumers’ income and ongoing expenses and has served as a strong leading indicator of the relative performance of the discretionary sector.

8. Ratio Of Negative To Positive EPS Pre-Announcements

The number of negative pre-announcements has declined in Q2. According to Cornerstone, improving corporate guidance is often synonymous with improving leading economic indicators.

9. Correlations

A decline in market correlations means that investors will be able to better use fundamental analysis to pick winners and losers in the markets.

10. Past Fed Tightening Cycles

Perhaps the most important of the charts for the investing public is this last chart, which shows that the Energy and Technology sectors have historically been the best-performing sectors in the three months following the Federal Reserve’s first interest rate hike of a cycle.