All Along The Watchtower

black android smartphone turned on screen

There must be some way out of here,” said the joker to the thief
“There’s too much confusion, I can’t get no relief
Businessmen, they drink my wine, plowmen dig my earth
None of them along the line know what any of it is worth”

“No reason to get excited,” the thief, he kindly spoke
“There are many here among us who feel that life is but a joke
But you and I, we’ve been through that, and this is not our fate
So let us not talk falsely now, the hour is getting late”

(From “All Along the Watchtower” by Bob Dylan, 1967, covered by Jimi Hendrix, 1968)

In this two-part blog series, we will discuss what we believe are a collection of under-reported—or perhaps underappreciated—market metrics. Specifically, we will discuss sentiment and behavior and what they might tell us about future market movements. In this first part, we will discuss confidence indicators and personal income and consumption metrics. In the second part, we will focus on investor sentiment and trading behavior.

Investor sentiment and behavior, whether retail or institutional, capture the market “mood”—is it optimistic or pessimistic? The given level of a given indicator may be less important than its trend—that is, which direction it is moving. This may provide information about how investors are likely to behave in the near to mid future.

Confidence Indicators

The three most commonly referenced confidence indicators are the University of Michigan Consumer Sentiment Index, the Conference Board Consumer Confidence Index and the NFIB (National Federation of Independent Businesses) Small Business Optimism Index

The first two of these are surveys of families and households, asking their opinions of general economic conditions, family financial health, expectations for the future and so forth. Since personal consumption drives roughly 70% of the U.S. GDP, gauging the “mood” of individuals and families can be very helpful for anticipating future consumption patterns, which may, in turn, influence future market movements.

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Disclaimer: Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. U.S. investors only: To obtain a prospectus containing this ...

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