How economic data works

Sometimes economic data trends, and trends in the same direction for a long time. And sometimes it peaks (or bottoms) and begins trending in a new direction – up or down.

But turning points in long-term trends are rare, and there are still other times during which there is no trend at all.

And it is during these long-term trends or trendless trends that people mistake ebbs and flows for being meaningful. And, worse still, they convince themselves or others that one of these ebbs or flows ought to be acted upon in the context of an investing portfolio.

But here’s the game – the less one reacts to the regular ebbing and flowing of ongoing data releases, the better one typically fares as an investor. Because an ebb can quickly become replaced by a flow on the next release. Or a flow could become an ebb. This is called oscillation, back and forth, forth and back. Just as not every snap of a twig in the forest represents a predator stalking the campground, not every newly announced piece of economic information contains anything meaningful.

Economic data is always discussed in the context of whether or not it is coming out above or below a market consensus of some sort. This is important because the media uses terms like “beat” or “missed” to describe the latest data point. Which is perfectly reasonable; people want to know if something is surprising. But one very important thing that gets lost in all this scorekeeping is the fact that the data isn’t the only

Keep reading this article on The Reformed Brocker.

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