The best of data, the worst of data

Hello, it's Friday the 15th of August. We had GDP data out in the UK this week and it's really what I'm referring to as 'Schrodinger's Data'. It's both good and bad at the same time. It really depends on what lens you view it through. To give you an example of that, we had some outlets reflecting on the fact that GDP growth in the second quarter of 0.3% was lower than the first quarter and so GDP slumped. But at the same time, it came in ahead of expectations. So other outlets have referred to the fact that GDP has come in ahead expectations. June data, looking at June within that three month cohort was better than expected. So some outlets have reflected the fact that it's come in better than they expected. And others are reflecting on the fact that over the first half of the year, we've actually the fastest growing G7 economy. So it's really fascinating to see how one singular piece of information about one single economy can be interpreted so differently depending on what lens you want to view it through.

Well, bluntly, that's what makes the market. People will always look at data differently. But it's fascinating in this particular example, the same bits of information really being interpreted from pretty negatively to actually fairly positively. And the reality is probably somewhere in between. But what it underlines again, is the importance of not relying on any one particular information source, and indeed sort of adding your own judgement on top of the information and how it's reported to you, rather than blindly following one singular source.

These data are poured over by institutional investors, private investors, central banks and the official sector. So in that sense, it is meaningfully important, at least in terms of the short term. And there's some evidence, I read a report from Goldman's this week, there's evidence that market sensitivity to some of this data has increased substantially in the last three years. Looking at US inflation, for example, their analysis suggests that the bond market is 2.4 times the normal level of sensitivity to inflation data, and the equity market is 1.3, 1.4 times as sensitive to US inflationary data. So, you know, maybe we are now chastened by 2022, far more concerned about inflation than we were in the past. But it's an interesting sort of demonstration of how we get a lot of data and in fact market responses to it have become amplified over recent years. Where it gets tricky and where we need to sort of be careful is at the same time, central banks are suggesting they're less confident in the quality of some of these data prints. You can look at the data and you can look revisions and see how much they get changed based on further analysis following the prints. And the reality of economic data is that they're always subject to revisions. And if you look at long-term data, as we do in the team, you will see they get revised fairly regularly. That's a sort of normal feature of data collection. But there's no evidence to suggest that the revisions are statistically higher today than they were, but nevertheless there is still a belief that data is a little bit poorer than it has been historically. And where you can see some substantive evidence of that is the number of respondents to the surveys, things like job openings for example, inflation even, as data that is collected by surveys, the number of respondents has gone down significantly in recent years. For example, job openings is the most significant one. That's down 30% in terms of the number of people responding to those questions. So you've got a lot of data coming out all the time, markets are becoming more sensitive to it and there is thinner, less rich information in that data as well. Understandably markets are fickle when it comes to data, but at the same time you've got to take it with a big pinch of salt because the revisions do come through and the amount of information in there could be less than you really want to see in an ideal world.

In the Liontrust Multi-Asset Team, we've repeatedly made the point that we get bombarded with information 24 hours a day. And really what investors should be looking to do is find the signal in amongst all of that noise because the noise can really sort of distract us from the longer-term important themes, the fundamentals that sit beneath that. So ultimately, it seems to us having a long-term diversified, differentiated approach to investment management that looks through this noise, focusing on the long-term, is really the best way to build portfolios and funds and invest for the right reasons over the long-term. That's it from me. Have a good weekend when you get there, and we'll see you next time.