Macroeconomic signals are often used as the main indicators for investment decisions. However, they are only one part of a holistic analysis. They are often sluggish and sometimes offer investors no added value for tactical decisions. We are currently using more dynamic indicators. They provide us with valuable information for positioning in the current environment.
- Financial conditions: This signal evaluates the financial conditions in the economy. It was developed to assess factors such as the availability and cost of credit and the general liquidity in an economic system. Loose financial conditions are good for the financial market in the short to medium term, while tighter financial conditions slow down momentum.
- Sentiment / Positioning: The stock market is significantly influenced by emotions. One sentiment signal, for example, is the AAII Sentiment Survey. This is a sentiment survey of the members of the American Association of Individual Investors (AAII). The survey measures how optimistic or pessimistic private investors are with regard to stock market developments over the next six months. Such signals serve as a contra-indicator: pessimistic sentiment indicators can indicate that the market is oversold. We use positioning data to recognise how investors are specifically positioned and can thus identify outliers.
- Technical signals: Technical signals help to determine entry and exit points and enable better risk management. Signals such as momentum or trend channels can be particularly helpful in phases when fundamental data is less effective and emotions play a greater role. For some months now, various stock markets have been in a perfect trend channel and are showing strong momentum.
Economic indicators as signposts
The aim of theoretical models is to estimate the expected returns of an equity portfolio or a share. In this context, the Grinold-Kroner formula from the 1980s is a well-known example that uses macroeconomic figures for estimation.