Cutting Through The Noise
As I sat down to write this week’s note, a Bloomberg headline floated across my screen – 60,000 Headlines Show Powell’s Hawkish Pivot Has Just Begun. The article discusses the use of Bloomberg’s proprietary Economics Fed Sentiment Index driven by an AI engine that analyzes news headlines surrounding Fed speaking engagements. What struck me about the headline was the sheer volume of data that market participants are inundated with on a daily basis. With the advent of technology, the capacity to create information has grown exponentially, making it harder and harder to decipher signal from noise. The headline, beginning with “60,000 Headlines” highlights the problem of noise. This week’s data releases offered a cross current of simultaneous positive news and negative news providing a different example of noise. For example, an unexpected downside surprise in the Q1 GDP release could be contrasted against positive news from internal components of GDP, such as Final Sales to Domestic Purchasers, and positive real-time data such as big upside earnings surprises from Google and Microsoft, as well as the first release of the Atlanta Fed GDPNow model which published the first forecast of Q2 GDP as a jaw dropping 3.9%. The mix of seemingly conflicting data is creating a whipsaw of opinions that is oscillating between good news and bad news, generating a fog of noise. The lack of clear uniformity in the data pointing to a specific outcome means markets are subject to chop and volatility. For example, last week the S&P500 was up +2.67%, while the week before it was down -3.05%. The coming week’s Fed meeting and employment report will likely provide some short-term decisiveness, as we get an interpretation of what the Fed sees as signal and noise, combined with the most important component of all when it comes to growth - jobs. We continue to be optimistic about risk asset prices, with an important caveat - as long as the labor market holds up and the level of rates remains contained.
Early in the week Q1 GDP shocks the markets, which was steadied later in the week by PCE
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Economic surprises and inflation surprises trending in opposite directions driving market anxiety
Focus Point Sector Rotation Update: Oversold mean reversion signals triggered in Tech and Real Estate