“Davidson” on Chicago Fed vs Industrial Manufacturing

0

“Davidson” Submits:

Good example of how 2 indices using different criteria provide different results. The Chicago Fed is a soft data sentiment index while the Ind Prod Mfg is hard data driven, i.e. actual $value of goods produced.

You can see that CFMMI was soft late 2003 into late 2005 and then mid-2006 till early 2007 while the Ind Prod kept rising without a similar pattern.

Jim O’Shaughnessy: Fear Signals Created By The Reptilian Brain

ValueWalk's Raul Panganiban interviews Jim O’Shaughnessy, Chairman, Co-chief Investment Officer, and Portfolio Manager at O’Shaughnessy Asset Management. In this part, Jim discusses the fear and emotional signals created by the reptilian brain. Q1 2020 hedge fund letters, conferences and more That's very cool. For the factor to try to seek the reason why it works, Read More


CFMMI turned with the Ind Prod at tops and bottoms, but was only helpful at calling a SP500 turn in early 2009.

My two cents:

Sentiment indicators can be very dangerous. Had you seen the Fed Sentiment weakening in 2003 and then flatline in 2005-07 and simply “sat out” the market, you would have made a VERY unwise investing decision. Why? The market almost doubled in that time frame:

Even at “top and bottoms” of the market, the sentiment indicator is meaningless unless a correspnding turn in the actual data is present.

People’s “sentiment” will rule markets on a day to day basis but it is the actual data that overtime rules the direction.