Surprise! This index shows the economy is in trouble

The Citi Economic Surprise Index hit a multiyear low Thursday and according to one portfolio manager, the move should have investors thinking about how to protect their portfolios.

The index is a widely followed indicator of how economic data are matching up to expectations, and the fact that it hit its lowest level since August 2011 has Chad Morganlander of Washington Crossing Advisors urging investors to start protecting their portfolios in light of a "deceleration of growth."

"What we believe will be happening over the course of the next six months is you're going to start to see financial conditions tightening a bit," he said Thursday on CNBC's "Trading Nation." "It doesn't mean [it will result in] a scare or a recession, but rather just a deceleration."

As a result, Morganlander recommends that investors start moderating their equity exposure "from overweight to [a more balanced] equity exposure" in case the stock rally hits a snag. He also recommends looking at a more long-term bond portfolio as he sees the yield curve flattening out more in the next three to four months.

But in the event that the index continues to sit at such low levels, Bill Baruch of iiTrader suggests that this might be the right time to buy the U.S. dollar. According to Baruch, when the index falls down into the -40 percent to -60 percent area, just slightly lower than its current levels, "you want to buy the dollar" as that's an indication of a rally.

"Hard data has been just about awful, but the Fed has been positive over the last week, talking very hawkishly and that's really gotten the dollar to try to bottom," Baruch said on "Trading Nation." "If the hard data can come around, the dollar index is about to rally about 2 percent."

The dollar has, in fact, dropped almost 5 percent this year, in tandem with the Citi index.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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