Beat the Market! Six Indicators to Spot Market Reversal Alerts

Since bottoming out in late 2022, the bull market has persisted for nearly a year and a half now, as the global economy rebounded from the brink of recession and entered a period of expansion. However, the global equity market has seen wild swings lately, confirming we’ve entered the second half of the bull market, a point we repeatedly highlighted in previous articles. In light of ongoing market turbulence, MacroMicro has developed an exclusive Market Reversal Alerts Dashboard. This article introduces six of the indicators on the dashboard and how they can help you spot reversal signals in the market.

I. Global Economy: OECD Leading Indicators & Manufacturing Cycle Index

• OECD CLI Diffusion Indices: The OECD Composite Leading Indicators (CLI) include 10 economic metrics that measure overall economic conditions and whether economic activity is slowing down or expanding. By monitoring monthly and annual changes in the CLIs of different economies, investors can assess business conditions across the global economy. When the diffusion index begins to decline, it signals deteriorating economic conditions in most countries around the world.

• MM Manufacturing Cycle Index: Compiled by MacroMicro, this index integrates data from global manufacturing, retail, transportation, and trade. The manufacturing cycle typically spans 3~4 years, with each downturn in the cycle usually accompanied with corrections and increased volatility in the equity market.

MM Research Insights: Readings of the OECD CLI Diffusion Indices suggest signs that the global economy is starting to slow down. Both the month-on-month (MoM) and year-on-year (YoY) diffusion indices started to decline, driven by MoM downturns in Mexico, Brazil, Spain, France, and China. If more economies join this trend, the shift in global business conditions will become more evident, signaling a cyclical peak is approaching.

As for whether more economies will move towards a slowdown, we can monitor the manufacturing cycle for insights. During the upswing phase of the manufacturing cycle, nearly all economies (especially emerging markets) will expand simultaneously. A subsequent reversal downward will certainly be bad news for most economies that rely on manufacturing and trade. From there, it will be crucial to watch whether the global economy enters a contractionary phase at the end of this year or early next year.

II. AI Trends: Semiconductor Billings & Taiwan Exports

• Semiconductor Billings: Figures on semiconductor billings published by the Semiconductor Industry Association (SIA) serves as crucial data points for assessing the semiconductor industry cycle. Also, given the tech/chip sector currently accounts for an outsized weight in global equity markets, a turning point in the semiconductor cycle could drive a reversal in stock indices.

• Taiwan Exports: As a major semiconductor exporter, Taiwan’s export figures serve as a key barometer for global economic health. Rising year-on-year growth in exports from Taiwan usually indicates rising global demand for goods, which generally leads to rallies in global equities. Conversely, a decline in export growth suggests weakening demand, which could trigger a downturn in stock markets.

MM Research Insights: Propelled by the AI boom that began in 2023, semiconductors have become a significant driver of economic data, industry revenue, and even stock price momentum. The past two cycles in the annual growth of global semiconductor billings have generally mirrored stock market cycles. After reaching elevated levels, it’s usually billings growth in Asia-Pacific that first sees greater fluctuations, followed by a reversal in U.S. billings growth, which often coincides with stock market downturns. Currently, U.S. semiconductor billings continue to hit new highs, but billings in the Asia-Pacific region have already plateaued, signaling the need for keeping a closer eye on future developments.

Second, as our team has frequently highlighted,

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