Market Noise

What panic? Consumers haven’t felt this good since pre-Lehman crisis

Every week we sit down as a team to look at a summary of the economic data releases from across the world over the past seven days. We try to decipher what, if anything at all, those little green and red numbers tell us about the nature of the global investment landscape today.

The one thing that is always clear from the changes in these numbers over time is that models based on assumptions of efficient markets and rational agents are missing a big part of the whole picture – the human element that moves markets in irrational, unpredictable ways.

A few weeks ago, we saw lots of green numbers but over that week equity markets sold-off and mainstream government bonds rallied, as investors were gripped by panic around weaker growth forecasts, geopolitical tensions and Ebola. The following week, most of the numbers turned red – and markets bounced back.

There are two issues here – firstly, how much attention should we pay to data on a week by week basis? And secondly, how much attention should we pay to short-term market volatility? In that one week, had there been a material shift in the global economic outlook? Why did the panic start to dissolve as quickly as it had appeared? Had any of these issues been resolved over those seven days? Why do certain things matter one week, and something totally different the next?

The market changes the value it attaches to these data points, and sometimes will get extremely worried about data points that aren’t even statistically significant and at othertimes completely ignore more important long term trends. It is more ‘fun’ and salient to pay attention to day to day data releases.

We can clutch at straws to try and explain economic indicators and asset price movements in the short-term but in our view, if we look at either of these over a more meaningful time period, there isn’t much to see here in terms of the broader picture. There have been no new major economic tail- or headwinds that suggest we are in a different place to at the start of the year. We are broadly still in an environment of slow, steady global expansion. But in which we can expect plenty of short-term volatility in both the data and markets.

In any event, something that was interesting in the data recently was one of the few green numbers – the reading for the University of Michigan’s Survey of US Consumers. At 86.4, US consumer confidence for October 2014 is at the highest it has been since pre-Lehman’s crisis (and it is a similar story for the UK, see chart below).

Consumer confidence

This does not seem to indicate that people are panicking about the economic outlook or that fear is about to take over markets. Much of the strength in this reading is attributable to the personal finances category. This is the sort of thing that really should matter, because genuine economic growth will most likely come from people feeling positive enough about the economy and their own personal finances that they start spending and investing. This is what Stuart Canning was referring to when he said that “animal spirits are what matter” in his post last month.


The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.