Understanding this indicator
Global equity markets tell many different stories. Earnings, interest rates, policy changes and local events can send individual markets in different directions. Yet beneath those stories lies a useful question: what is happening to equities as a whole? This indicator is designed to make that broader picture easier to see.
Companies are connected through trade and supply chains, and investors move money across borders. Changes in demand, financing conditions and confidence therefore often reach several markets together. Their returns need not be identical for a common pattern to emerge. A shared upswing can include markets that rise strongly, markets that rise modestly and markets that are only beginning to recover.
We compare major national and regional equity indices with their levels a year earlier, then use principal component analysis to extract the strongest common movement. Before combining them, the data are adjusted for differences in long-term trends and volatility. Think of the process as finding the shared melody in many market voices: the contribution of each index is determined by the data rather than by simply adding index levels.
Look first at the direction and turning points of the cycle line, then compare them with the year-on-year series. If the two begin to move together, it is worth exploring which markets are participating. If one country departs from the global pattern, the difference may be as informative as the common trend. The indicator provides a backdrop for understanding local markets and for comparing equities with rates, currencies and commodities.
The green line isolates the 3–4-year Kitchin cycle from the historical data; it is a fitted cycle, not a forecast of the next turn. The lower chart shows the 7–10-year Juglar cycle and the 15–25-year Kuznets cycle. Comparing these time scales can reveal why a shorter upswing sometimes sits within a much longer period of weakness. The two main-chart axes use different scales, so compare their timing and direction rather than the height of one line against the other. Historical curves may change as the data are updated.