Daily Archives: Aug 9, 2016 at 07:00 am EDT

Refining Mr. Market’s Forecasts With A Macro Filter

In late-August 2015, the US stock market tumbled sharply, unleashing a year of heightened volatility that seemed to anticipate the worst for the economy. But the volatility turned out to be a false alarm and equities rebounded, reaching new all-time highs in recent weeks. Mr. Market’s warning, in short, was a dud. In fact, the S&P 500’s various swoons over the past year turned out to be buying opportunities. That’s obvious now, but uncertainty reigned supreme in real time, at least from a markets-only perspective. By contrast, it’s useful to point out that Mr. Market’s tantrums were never verified by real-time monitoring of US macro risk. The lesson: filtering market volatility through a macro prism is essential for separating the signal from the noise.
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