Note the spike higher in Argentina’s Stock Market the Merval following their historic World Cup victory last weekend.
This is similar to academic research such as “Sports Sentiment and Stock Returns” published in the Journal of Finance by Alex Edmans, Diego Garcia, Øyvind Norli - losses dampen moods and victories lift them - leading to national economic effects...
Note how optimism about the Chinese Stock Market rocketed following rumors (and then reality) of Covid Zero policy roll back.
Behavioral finance research shows that relief from financial fear leads to - unexpectedly - excessive risk-taking, accounting for this “COVID relief rally.”
The optimism chart was developed using a z-score of our Chinese stock market optimism index, derived from millions of news and social media comments in 13 languages, over the course of 2022.
Our Leadership score for the UK tracks news and social media-based perceptions of British leadership quality over time using NLP and Fall 2022 is a rollercoaster (see chart).
Most recently, the increasing cost of living is impacting Leadership perceptions.
While the economy seems to still be growing, our media-based recession indicator says it will soon be in recession.
Note that when the media begins to beat the drum on an impending recession, a self-fulfilling prophecy may kick in as businesses hunker down in anticipation of the event. In this chart we show in blue the net references to "economic growth" vs "economic contraction".
When the references to Growth vs Contraction fall below 1 standard deviation of their historical average, this has always preceded an actual recession since at least 1968 in the U.S.
A depiction of U.S. real estate sentiment since Jan 2019.
The blue bars are the Russell 1000 stock index. The purple line is average commercial real estate sentiment, which is higher now that workers are going back to the office post-COVID. The green line is residential real estate sentiment, which is as low as it has been since 2011 due to rising mortgage rates.
Sentiment is measured in the U.S. business news and social media from references to each asset class.
“We are not makers of history. We are made by history.”
~ Martin Luther King, Jr.
2021 was the Great Acceleration of technology and society: Memes, Anti-aging, mRNA, CRISPR, AI, Sustainable Finance, the Electricity Economy, Metaverse, DeFi, NFTs, Flying cars, and to cap it all off – surprise! – inflation.
As investors it helps to know the dominant narratives driving the market, and where we are in each cycle. In 2021 media narratives dominated the conversation and passed on silently in COVID-like waves. The contagiousness of memes, and the bold meaninglessness of many, imbued 2021’s financial markets with a beautiful insanity.
An article summarizing a few of the year’s memetic winners is here. The pace of change will slow (some mini-bubbles are popping), but markets will be forever changed. It’s an amazing time to be alive, with the Acceleration of Everything.