Good example of how 2 indices using different criteria provide different results. The Chicago Fed is a soft data sentiment index while the Ind Prod Mfg is hard data driven, i.e. actual $value of goods produced.
You can see that CFMMI was soft late 2003 into late 2005 and then mid-2006 till early 2007 while the Ind Prod kept rising without a similar pattern.
CFMMI turned with the Ind Prod at tops and bottoms, but was only helpful at calling a SP500 turn in early 2009.
My two cents:
Sentiment indicators can be very dangerous. Had you seen the Fed Sentiment weakening in 2003 and then flatline in 2005-07 and simply “sat out” the market, you would have made a VERY unwise investing decision. Why? The market almost doubled in that time frame:
Even at “top and bottoms” of the market, the sentiment indicator is meaningless unless a correspnding turn in the actual data is present.
People’s “sentiment” will rule markets on a day to day basis but it is the actual data that overtime rules the direction.