Dueling data leaves market outlook open to interpretation
Economic data as a Rorschach test? Like the famous inkblots, competing good news-bad news releases make market outlooks appear highly subjective.
July 17, 2020 | 2 minute read
Market headlines this week underscored the type of dueling good news-bad news scenarios that investors have been wading through since the market recovery began.
The Citi Economic Surprise Index, which is a gauge of optimism about the economy, reached a record high again in July.1 Likewise, the NFIB Small Business Optimism Index released this week beat economists’ expectations and has now retraced all of its April and May declines.2
At the same time, however, the “Actual Earnings Changes” portion of the Small Business Optimism Index has been in a near freefall for the past three months.2 Among the largest corporations, Wall Street banks sounded notably pessimistic on their Q2 earnings calls this week. Three major lenders set aside $28 billion for bad loans in Q2, a quarterly mark surpassed only in Q4 2008.3
In the face of such competing, high-profile economic releases, investors may be excused for cherry-picking the data points they prefer. The chart highlights the market uncertainty such disparate data has created. It shows the results of a recent survey of investors’ expectations for the market over the next six months – every option, from “down 10%” to “up 10%” and everything in between, received about the same percentage of votes.4
Against this backdrop, investors may do well by planning for a range of possible market movements – participating in potential upside while also remaining prepared if markets take another step down. In either case, experienced, active management may be more important than ever in discerning the market’s next movement.
Private credit has increasingly become the preferred source of financing for PE sponsors, with direct lending volume jumping 60% over last year’s level.
