So, does the market predict economic downturns, or cause it?

Discussion in 'Trading' started by Saltynuts, Feb 11, 2018.

  1. Is there any evidence as to, when the market goes into bear mode, and a few months later the economy tanks, the market PREDICTED the economy tanking, or instead whether it caused it?

  2. Market is forward looking
  3. Not hard to see for yourself ? Both market data and economic data are widely available data..
  4. DeltaRisk


    You’ll find your answer here
    cdcaveman likes this.
  5. Indeed. Market sentiment can change quickly...we've just seen an example of that. Suddenly everything is a worry...inflation, interest rates, federal deficit. 3 weeks ago, the market had no worries.
    cdcaveman likes this.
  6. I get that about the market being forward looking. But is it also its own self-fulfilling prophecy at least to some significant degree? For example, if bad economic data comes out (such as syswizard describes - inflation, interest rates, deficit), but the market did NOT go down, might the economy do a lot better over time as compared to the market instead crashing?
  7. Sig


    I can tell from several threads that you're looking for some kind of holy grail "leading indicator" that simply doesn't exist. The economy and the market are inextricably linked, it's hopelessly naive to ask if one predicted or caused the other as there are dozens and dozens of factors that influence the answer to that question. Again, I highly recommend a Finance 101 MOOC, it will answer many of your questions and given your interests expressed here I think you'll find it very interesting and enjoyable. Getting a finance education in dribs and drabs from a bunch of jackasses on the internet who may or may not know wtf they're talking about is madness when there are so many high quality free options available.
  8. Bloomberg had several cool indicators on their show this morning...Dividend Yield vs. S/T interest rates....and the other one was some sort of High Yield rates vs. 10 year note rate.
    Neither were looking very positive for the market, but then again, the correlation coefficient was likely below .50. No holy grail there.
  9. tommcginnis


    "The markets have successfully predicted 9 of the last 5 recessions."
    Paul Samuelson, MIT professor, 1970 Nobel Prize laureate in economics.
    beerntrading, vanzandt and Xela like this.
  10. What came first, the chicken or the egg burrito?
    #10     Feb 12, 2018
    RRY16 likes this.