Neudata

Investors turn to data to predict impact of second wave, civil unrest

A combination of fears around a second coronavirus wave, civil unrest and uncertain macroeconomic policy decisions drove US stocks lower last week, but the signs were there according to several vendors who noticed unusual patterns in their data leading up to Thursday’s market sell-off.

US stocks had been rising steadily over the past few weeks, especially as more state governments declared that they were open for business. But investors got spooked late last week around the same time that sentiment data providers noticed a spike in the term “second wave” in news stories related to the market. Vendors tended to agree that these second wave mentions peaked as the market was falling, rather than providing a leading indicator.

A better leading indicator, however, was sentiment from US corporates. According to Peter Hafez, chief data scientist from Ravenpack, corporate sentiment has been deteriorating aggressively since roughly Tuesday, 9 June.

“The bottom of the market from a [corporate] sentiment perspective was in mid-May and since then, we’ve seen a more aggressive move upward in sentiment, with the top on [Monday,] 8 June,” he said. “But early last week, we started seeing sentiment deteriorating aggressively and it’s been relatively flat since.”

Source: SESAMm

Investors also began to notice a decline in sentiment on certain tickers, which could have tipped them off to an impending correction. The ticker SPX (S&P500), for example, showed a severe decrease in sentiment over a week before the correction, according to data from sentiment provider SESAMm.

SESAMm also tracked fear and surprise indicators over the same period and, while the values were low compared to highs in February and March, fear steadily rose in the days leading up to Thursday’s selloff.

Source: SESAMm

Investors also began to recognise the uncertainty of macroeconomic policy decisions, according to sentiment data provider Brain. Brain’s market sentiment indicator — which measures the general mood of equity markets through natural language processing analysis on financial news sources — began deteriorating on 7 June after a period of positive activity in May.

The triggers for the decline, according to Brain’s executive chairman and head of research Matteo Campellone, included an OECD announcement that the coronavirus could cause the world’s worst peacetime economic slump in 100 years and concern around Federal Reserve chairman Jerome Powell’s remarks that the US economy may be slow to recover.

“On Sunday, 14 June, the BMS reached its lowest value of the past three weeks due to the rising amount of news highlighting the fear of a second coronavirus wave worldwide,” Campellone said.

To better understand the global impact of the virus, investors started to turn to data from emerging markets, including India and Brazil, where cases are beginning to spike.

Another early signal of coronavirus’ lasting impact on markets came from telehealth app download data. TMI Data Science, a sentiment data provider that plans to start offering sentiment data products to the investor community this fall, noticed a spike in US telehealth app usage at the beginning of June, particularly in California. Apps like Teladoc, Telehealth, Amwell, Doctor on Demand, K Health and MDLIVE registered higher-than-average download numbers. K Health was a particularly high performer in May, rising 39 places in the Apple App Store over the month to hit #5 on 25 May.

Usage of the Kinsa Smart Thermometer app spiked over the same time frame, albeit to a lesser extent, TMI’s managing director Elan Gore said.

Vendors also pointed to the impact that civil unrest and protests over the treatment of black Americans, which started in the US on 26 May, had on market sentiment.

During this time, providers noticed a decline in online US consumer spending activity — in the final week of May, US e-commerce card spending on online purchases was down roughly 10%, according to credit card data from JP Morgan Chase.

Gore triangulated those statistics with footfall traffic data and first-person accounts to draw a bigger picture of general consumer sentiment. “America is not in the mood to shop,” he said, “and for good reason.”

“People were so caught up in the [market] momentum,” he continued. “At the end of the day, what people fail to see in these situations is that we keep hearing these semi-reluctant dissenting voices saying the market is a little ahead of itself.”

First-person accounts of missed mortgage and car payments also crept up in the first week of June, Gore said.

Moving forward, investors are focusing their market recovery concerns on these issues and continuing to watch for data that can help them understand the impact of sustained border closings and travel restrictions, according to market players who spoke to Neudata.

 

Photo by JJ Ying on Unsplash