From the stock market to the economy or the other way around

A lot of models of the economy use the stock market as a leading indicator. That is why it can be very silly to turn around and use these models in order to figure out where the market is going*. Perhaps more subtle forms of this type of mistake are why economists are generally not known for being good traders. However, there are interesting micro-relationships within the market that correspond to economic activity in interesting ways. One of these is the relationship between consumer discretionary stocks and consumer staples stocks vs. nominal US personal consumption expenditures.

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Right now, the market seems to be pricing in a slightly lower nominal growth rate than it did pre-crisis.

*These models can be useful insofar as it helps tell a trader that the market has an incorrect macro view, but that is another story.

Filed under  //   economics  

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

Disclaimer: You shouldn’t consider anything on this site to be a recommendation or solicitation to buy, sell, or hold any securities or commodities. I’m not offering you investment advice. I or the company I work for may hold positions in securities that I mention.