Saw an interesting note this morning regarding Citigroup’s U.S. economic surprise index.

Obviously, 2017 has been an incredible year for the markets with the S&P 500 up more than 20% so far, reflecting a strong economy that has achieved its highest sustained growth in more than 3 years. However, when this reading has achieved such lofty heights previously (>70, it is now 84.5), the subsequent 6 month period has been modest at best for the U.S. equity markets.  In fact, according to Jim Paulsen, CIO, Leuthold Group, the S&P 500 has only achieved a 2.8% annualized return during the next 6 months.

The momentum witnessed in the economy is likely to lead research analysts to continue to ratchet up their economic forecasts making it very difficult for the economy to continue to surprise going forward. Markets tend to outperform when expectations are more modest providing opportunities for positive surprises.