Barbara Reinhard, CFA
Senior Managing Director, Chief Investment Officer, Multi-Asset Strategies and Solutions
Maverick Lin
Asset Allocation Research Analyst, Multi-Asset Strategies and Solutions
People are chock full of cognitive biases, one of which is the negativity bias: We tend to pay more attention to ― and give more weight to ― negative information than positive information. When it comes to investing, we are drawn to doom and gloom narratives such as the collapse of the U.S. dollar; the inevitable, exploding debt bomb; the severe underfunding of Social Security and Medicare; the likelihood that China will invade Taiwan. Focusing on such narratives doesn’t mean the events won’t happen; and in any case, it’s difficult to predict second- or third-order effects.
Currently, a prevailing narrative says the U.S economy is headed towards a recession. Yet certain recent data have proven better than expected, suggesting that conditions may not be so bad:
- Durable goods orders for May came in at 1.7%, surpassing the expected -0.9%.
- New homes sales for May jumped 12.2% to 763,000 versus an expected 675,000.
- The consumer confidence index rose to 109.7, above an expected 104.0.
- First-quarter 2023 GDP came in at 2.0%, beating expectations of 1.4%.
- Jobless claims for the week ended June 24 fell to 239,000 versus an expected 265,000.
- Core PCE rose 4.9%, below the expected 5.0%.
What’s more, the current price actions of the major market indexes seem to confirm that investors agree things might not be so bad as some think they are (S&P 500 climbs a wall of worry, enters a bull market).
Maverick Lin contributed to this article.