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When assessing the stock market’s economic drivers, Fisher Investments Canada reviews many indicators. In our experience, no single indicator will reveal the state of the economy. Instead, we think investors likely benefit from considering a wide swath of data to inform their investment decisions. Here we will discuss one category – so-called ‘hard data’ – and how investors can use them in their portfolio decision-making.

Hard data are economic measures that tabulate output or transaction values or volumes. One of the most popular examples, based on Fisher Investments Canada’s reviews of financial headlines, is gross domestic product (GDP), a government-produced measure of a country’s economic output. Other widely tracked examples include industrial production, retail sales, which are a measure of the total value or volume of a retailer’s sales to consumers, which is often treated as a barometer of consumer spending, and consumer price indexes (CPI), a government-produced gauge covering prices of a range of goods and services.

Whilst the particulars vary, hard data show what economic activity actually happened. These datasets contrast with qualitative indicators – what Fisher Investments Canada refer to as ‘soft data’ – which include surveys estimating broad trends in business activity.

As with most economic data Fisher Investments Canada reviews, hard data are backward-looking. Because of the information collection and calculation process, numbers may come out several weeks – or even months – after the given reporting period.

Exhibit 1: Hard data come out at a lag

Source: FactSet, Eurostat, Office for National Statistics, US Bureau of Labor Statistics, US Census Bureau, US Bureau of Economic Analysis and Statistics Canada, as of 10/8/2022. Listed lag times are approximations based on data series’ initial release. Datasets are monthly unless noted otherwise.SUPPLIED

Note, too, Exhibit 1 is based on the release of the initial estimate of the given measure. Many series have several releases, and the numbers are subject to revisions. For example, the preliminary flash estimate of quarterly eurozone GDP comes out about a month after the reporting period. But this reading doesn’t include all member states’ results – that release comes out about two months after the fact. All told, the final estimate of eurozone GDP comes around 110 days after the reporting period and reflects several rounds of revisions.

As informative as hard data are, their usefulness in investment decision-making is limited, in our view. Hard data don’t predict the economy – they can only confirm past activity – but Fisher Investments Canada’s research shows stocks are forward-looking, reflecting what is likely over the next 3 – 30 months. As efficient discounters of widely known information, stocks likely have already largely priced in the economic developments hard data confirm by the time they come out, in our view.

Consider this: When a US recession (an extended economic downturn) began in 2008, the advanced estimate of Q1 GDP showed annualized growth of 0.6 per cent.[i] The second estimate, released a month later, was revised to a stronger 0.9% annualized growth rate.[ii] Q2 2008 GDP grew. It wasn’t until Q3 GDP came out in October that these hard data reflected contraction. At that point, US stocks were more than a year into a bear market (a fundamentally driven, usually prolonged downturn of -20 per cent or more).[iii] In our view, they had pre-priced the economic weakness confirmed by GDP. (As an aside, the US Bureau of Economic Analysis revised Q1 2008 from 0.9 per cent annualized growth to contraction of -0.7 per cent annualized on 31 July 2009 as part of a broad revision.[iv] Further revisions have since shown Q1 2008 GDP contracted at a -1.6 per cent annualized rate.[v])

These limitations don’t mean hard data are useless or to be ignored, though. Despite their lag, hard data can help identify broader economic trends. Whilst those trends won’t necessarily continue, viewing longer-running developments can put monthly wiggles in context. Hard data can also provide clarity, which is particularly useful in times of high uncertainty. They can confirm if whatever commentators broadly warn is a risk has played out in some fashion or another. For example, if many worry GDP will contract – and the official data show it happened – that confirmation can help investors move on. In Fisher Investments Canada’s reviews of market history, we find simply knowing something happened can reduce uncertainty, which can weigh on investor sentiment.

Hard data may also show investors how reality aligns with expectations. Did the former beat the latter or fall short? For instance, if the majority of economists expect a severe GDP contraction, a milder-than-anticipated dip may suggest reality isn’t as poor as feared. Similarly, if most analysts estimate robust GDP acceleration, slowing growth or an output dip may indicate the experts’ projections are too lofty. That information can help shape outlooks going forward, as it can inform investors about the gap between expectations and reality – what stocks move most on, in Fisher Investments Canada’s view.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates. This document constitutes the general views of Fisher Investments Canada and should not be regarded as personalised investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments Canada will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

Fisher Investments Management, LLC does business under this name in Ontario and Newfoundland & Labrador. In all other provinces, Fisher Asset Management, LLC does business as Fisher Investments Canada and as Fisher Investments.


[i] Source: US Bureau of Economic Analysis, as of 12/8/2022. Annualised GDP figures refer to the rate at which GDP would grow or shrink over a full year if the quarter-over-quarter growth rate repeated for four quarters. Recession dating based on National Bureau of Economic Research, the official arbiter of US business cycles.

[ii] Ibid.

[iii] Source: FactSet, as of 12/8/2022. S&P 500 Total Return index, in USD, 9/10/2007 – 31/10/2008.

[iv] “National Income and Product Accounts, Gross Domestic Product: Second Quarter 2009 (Advance Estimate), Comprehensive Revision: 1929 Through First Quarter 2009,” Staff, US Bureau of Economic Analysis, 31 July 2009.

[v] Source: FactSet, as of 12/8/2022.


This content was produced by Fisher Investments Canada. The Globe and Mail was not involved in its creation.