The algorithm is winning. We live in a time where every click we make and every step we take generates metadata; sometimes just uttering a thought out loud can trigger an ad on a social media feed. This is also an age where disinformation and political leanings have been weaponized to great effect on social media. So how does the algorithm affect the leading sentiment indicators studied by investors today? Based on a comparison of the current economic cycle and the Great Financial Crisis in 2008, quite a lot.
Late last year, the market had already decided the Federal Reserve Bank had reached the end of its interest rate tightening cycle. Investors were mildly optimistic the Fed would engineer a “soft landing” with respect to a recession. Inflation, which peaked in June 2022 at more than 9%, had drifted back down to 3.2% by October. This downward trend in inflation was happening not because demand had cratered. In fact, the U.S. gross domestic product (GDP) was still up nearly 5% in the third quarter of 2023.
