“Nowcasting” and Why It Matters
The market is responding to a health risk unlike anything we’ve dealt with in recent decades. This may feel like our economic system is under attack, however, what markets are telling us is what they have always told us: they fear the unknown, just like most of us.
While days in the markets like Monday, March 16 or today, March 18, (and a few before that) aren’t common, they have come around with a greater frequency in the last decade, in part due to programmatic trading, which is new to our system and markets.
The tendency to forecast the future sitting in the middle of today’s markets and economic data is fraught with danger. We call this “Nowcasting”.
Nowcasting is defined as the prediction of the present and the future based only on the very recent past. The term is a contraction of "now" and "forecasting" and has been used for a long time in meteorology.
COVID-19 is evolving; humanity is being tested. Nowcasting can lead us astray as we incorporate today’s events into our future - likely resulting in skewed outcomes. This would be the equivalent of forecasting next week’s weather based on today’s weather when in the midst of category 5 hurricane.
Today’s numbers will quickly become outdated as matters rapidly change around the world. Today’s “now” can and may change quickly, so avoid the tendency to anchor to today’s data or “nowcast”. History tells us that after a period of challenges we adapt, we adjust, we stabilize…things do change.
Finally, when economic global events occur, the strongest financial systems fare the best and rise to the top. When we look at the US dollar relative to currencies around the globe, it is clear that the US is one of the strongest systems on the planet. Our financial leadership has the tools to fix this crisis, and they are being implemented. We are all in this together, which is a position of our greatest strength and if history is a guide, stocks will begin to recover before the pandemic is on the wane.
The strongest markets are not built
on a foundation of good news,
but on diminishing bad news.
One thing is for certain, more news is coming at us with impactful headlines. The time will also come when bargains make themselves obvious to the naked eye of the disciplined investor. The window of opportunity, as always, will be short, but highly rewarding over the longer term - we will be there for you.
Charter Oak will continue to work diligently by managing your investments, providing timely information and guidance, and measured advice. We will continue to be available by phone, email and, if necessary, via online meeting for any questions.