Economic surprise indicators quantify how incoming data compares to analysts’ estimates, which are used as a proxy for market expectations. Usually, these surprise indicators tend to do a good job in measuring whether markets see “the glass half full” or “half empty”. U.S. surprise indicators were negative throughout most of 2015 and into the first half of 2016, a period when the equity market was basically going sideways with quite some volatility, including two major dips. Only in mid-2016 did the S&P 500 Index finally manage to break out of the sideways range, which coincided with the surprise indicator going above zero again.
After the presidential election, we have witnessed the surprise indicator literally going-through-the-roof. This increase, however, was largely driven by strong rises in sentiment data, i.e. indicators which are compiled by conducting surveys. So-called hard data on average so far failed to reflect this surge in optimism, as our chart of the week shows. It will be interesting to see whether the recent political stumbles (e.g. the failed attempt to repeal Obamacare) will do some damage to the current spirit of optimism, which in turn would then lead to a drop in surprise indicators.
Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH; as of 3/30/17