Too much market info is jamming up real-time trading models

Trying to use stock and bond signals to forecast the economy is never easy. With all the wild swings in markets these days, it risks becoming an exercise in the absurd.

Trying to use stock and bond signals to forecast the economy is never easy. With all the wild swings in markets these days, it risks becoming an exercise in the absurd.

Sometimes up, sometimes down, share prices and yield curves are bouncing around so much that discerning a macro message is borderline impossible. Two gains and three drops in the S&P 500 this week left it down 6 per cent on the year, but up 8 per cent from its low. Which message to heed? Bonds are equally indeterminate. The 2-year/10-year yield curve has inverted and un-inverted in the space of two weeks.

“The reality is signals in the marketplace right now have a lot of noise,” said Anik Sen, global head of equities at PineBridge Investments. “When you have a signal that is not particularly clear, that range of outcome is very wide.”

Research from Goldman Sachs Group Inc. suggests trying to discern a recession signal from stocks is generally futile. Mistakes are made, the study found, by people looking for indications that don’t exist. Equity markets behave the same 12 months before an economic downturn as they do any other time, for instance.

That’s bad news for investors who persist in searching for clues to help them navigate an expanding list of known unknowns, from the path of Federal Reserve monetary policy to war in Ukraine. All the uncertainty has prompted Victoria Fernandez and her team to shorten their investment horizon to deal with ever-shifting market narratives.