Does the Baltic Dry Index's Decline Really Mean Anything for Stocks?

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Includes: DIA, QQQ, SPY
by: Jersey Trader

The Baltic Dry Index, often considered a leading indicator, has been trending downward for almost a year, even while the stock market has been rising.

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This has lead to a question that many are asking themselves. Will the stock market following the Baltic Dry Index lower?

While, the Baltic Dry Index is considered a leading indicator, the term, "leading" generally refers to leading the economy, not necessarily stocks. Stocks are also considered a leading indicator for the economy, and thus the Baltic Dry Index is probably at best a coincident indicator for stocks. So, perhaps it is best not to read too much out of the decline in the Baltic Dry Index.

This can be further emphasized by a chart with more data. From December 2004 to August 2005, the Baltic Dry Index declined about 70%, but no serious decline materialized in the stock market.

Disclosure: Author is long stocks