The Leading Economic Indicator (LEI)

Mar 28, 2024 | Investing, Market Minute

The Leading Economic Indicator (LEI) is a tool to predict the direction of the economy and navigate financial markets. Discover why the LEI is not always reliable and why at GreenUp Wealth, we believe in a diversified approach to economic indicators to mitigate risk and identify opportunities.

Hi, I’m Daniel Greulich, Chief Investment Officer at GreenUp Wealth Management. The Leading Economic Indicator model, or LEI, is a composite index designed to predict the direction of the economy. By analyzing selected economic variables, the LEI has been a valuable tool for economists and investors alike, helping to navigate the often turbulent waters of the financial markets.

However, it’s not without it’s missteps. There have been instances where the LEI pointed towards a recession, only for the economy to veer in the opposite direction. Last year was one of those instances. The economy avoided a recession and the market had a fantastic performance year. 2023 was a powerful reminder of the limitations inherent in any forecasting model.

At GreenUp Wealth, we believe the key to effective economic modeling is adaptability. The economic landscape is perpetually evolving, which is why constant updates to our models are not just beneficial but essential to maintaining their relevance and accuracy. Moreover, we believe in a diversified approach to economic indicators, each independent of each other to inform our decisions.

This multiplicity not only mitigates the risk associated with relying on a singular forecast but also provides a more nuanced view of the economic landscape, enhancing our abilities to identify opportunities and navigate challenges with greater precision. Our goal at GreenUp is to is to maintain strategies that are robust, resilient, and responsive to the ever-changing dynamics of our economy.

Thank you.

Author

  • Daniel Greulich, CFA, CFP®

    Chief Investment Officer | Wealth Advisor | Ann Arbor, MI -- Daniel leads our Investment Committee and partners with Aaron Kirsch, Chief Client Advocacy Officer to design and implement client portfolios with your advisor. Daniel brings 14 years of practical experience as a trader, financial advisor, and money manager at both large and mid-sized financial services companies to GreenUp Wealth Management. In addition, he holds a CFP® designation and is also a CFA charterholder. This combination of experience and knowledge helps Dan confidently guide his clients through the development, execution and monitoring of their customized financial plans.

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