Why stock-market investors are freaking out over economic data they used to ignore

By Joy Wiltermuth

Investors are on edge about all kinds of economic data, including ordinary reports that used to be easy to overlook

Investors have been increasingly on edge about incoming economic data as the Federal Reserve works to cut rates and secure a soft landing for the economy.

Nerves still prickle around perpetually important data like monthly jobs figures. But tensions also perk up around ordinary economic updates, items that never used to dramatically move the needle in financial markets.

That's partly because investors have become "hyper sensitive" to the rapid-fire pace of news flow, said Jack Janasiewicz, a portfolio manager at Natixis Investment Managers Solutions. But they also can quickly react to the news, often with the flick of a fingertip.

"That sort of adds fuel to those outsized reactions,"Janasiewicz said.

Bespoke Investment Group dug into 25 years of data to further explore the trend. What they found was an uptick in volatility on Wall Street over the past four years, when looking at days that economic data was released.

While the S&P 500 index SPX averaged a daily move up or down of 0.81% when economic data was released before the pandemic, it increased to 0.94% after pandemic lockdowns took hold in March 2020, according to Bespoke.

Moreover, when looking at 34 types of individual economic releases, they found that "formerly less reactive indicators have come into focus."

Other findings were that ISM manufacturing data had a "diminished relevance" since the COVID-19 crisis relative to history, but that 10 economic indicators coincided with a 1% move on the day of their release.

Large 1% swings followed the release of the University of Michigan's consumer confidence survey, personal-income and spending data, ADP private payrolls and durable-goods orders in manufacturing, among other economic data, Bespoke wrote in a Wednesday report.

"Before the pandemic, there wasn't a single economic indicator in which the S&P averaged a move of at least 1% on the day of release," according to Bespoke.

JOLTed by data

Jeffrey Roach, chief economist at LPL Financial, has been following the volatility trend following economic-data releases.

He pegged the Labor Department's survey on job openings and labor turnover, or JOLTS data, as a "prime example of a dataset that was previously ignored but in the recent tightening cycle, became a fixation for policy makers."

Since Fed Chair Jerome Powell put a focus on its openings-to-unemployed ratio, a certain measure of labor tightness, the "ratio was highly watched, dissected and debated," he said. "But go back a decade or so, and traders often ignored that JOLTS release."

Market swings in the wake of the pandemic often followed surprises in inflation data. That makes sense, as the Fed was forced to hike interest rates aggressively in 2022 to tame a surge in the cost of living that failed to be "transitory."

"Fed-decision days," or when U.S. central bankers meet to discuss any potential moves in rates, also have been especially volatile.

Bespoke found that daily moves averaged 0.88% on Fed-decision days before COVID, but spiked to 1.17% since March 2020 under the Fed's Powell.

Janasiewicz at Natixis said leverage in the financial plumbing, including investors using options that expire at the end of the day and the popularity of single-name exchange-traded funds, could be other catalysts for big market swings.

Another trigger might be the S&P 500's recent push to fresh record highs, and its stunning 20% climb on the year so far, even as recession fears reignite.

There also has been renewed talk of inflation worries after the Fed's big 50-basis-point rate cut - the first in four years.

See: Fed's favorite PCE inflation gauge likely to show cooling inflation and back further rate cuts

Janasiewicz said consumers remain strong, that a recession looks unlikely and that stocks likely have further upside. But he also said investors have been on high alert for any signs of weakness in the economy that could trigger a painful selloff in equities.

"People don't want to be the last one to exit the market," he said. "People are very quick to move on the back of that."

The S&P 500 and Dow Jones Industrial Average DJIA jumped Thursday after a cluster of economic data, including a solid 3% GDP for the second quarter, as well as an ongoing reluctance among employers to hire, or fire, workers. The Nasdaq Composite Index COMP climbed 1%, according to FactSet.

-Joy Wiltermuth

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09-26-24 0958ET

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