The Power of Markets

One of the hallmarks of our investment approach is to respect the fact that markets are extremely powerful (though not infallible) as forecasting tools. On average, they do a pretty damn good job at incorporating all of the expectations for the future into current prices, adjusting on the fly with every headline and every trade.

Note that this is not the same thing as saying that the markets always get it right. In fact, at extremes they tend to get the future precisely wrong. It’s just that most of the time we’re not at extremes.

This week’s FOMC statement and presser provides just one more example demonstrating the power of markets. The nation’s top economists had arrived at a consensus for the first Fed Funds rate hike of the cycle to take place at the June 2015 meeting. The bond market, stubbornly, had indicated a traders’ consensus that pegged the first rate hike for the September meeting or even later.

Yesterday, after the Fed said its peace, the economists ended up capitulating. Their forecasts have now been brought into alignment with what the bond market had been saying all along – a September meeting rate hike consensus.

Here’s Reuters:

Just two weeks ago, the top economists for this group had been centered around June as the likely date for the Fed to finally end the near-zero rate policy it adopted in December 2008. The shift brings these economists into closer alignment with the bond market’s view for when the Fed will make its move.

Twelve of 16 U.S. primary dealers that do business directly with the Fed said on Wednesday they see a rate liftoff in September or later. Just four of those responding to a Reuters poll stuck with June as their forecast.

By contrast, in a March 6 poll taken after the latest in a string of robust U.S. employment reports, just seven of 16 respondents predicted a September or later liftoff, while nine had called for June.

Opinions and subjective macro views are just fine, knock yourself out. But ignore price – the message of the market – at your own risk. The more people there are estimating a thing, the better the estimation.


Top Wall St. firms now see Fed liftoff in September: poll (Reuters)

Read Also:

February Client Letter: Back to Basics (TRB)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web