The Augmented Trader: Forecasting Stock Market Strength Using …

A new blog from Lucena’s CTO, Tucker Balch, Ph.D!

“It is clear, in hindsight, that investors would have done better in 2008 if they had known to move from stocks to fixed income at the beginning of 2008. And similarly, if we could anticipate future bull markets we’d like to be able to shift assets into equities beforehand. Is it possible to anticipate these significant market moves?

Note: This article describes a macro economic model we’ve been working on at Lucena Research. We developed it as a way to inform some of our investing strategies — As one example: For a large cap stock & bond strategy we’d like to know whether we ought to be emphasizing stocks or bonds at any particular moment.

How can we predict market strength or weakness?

Short-term market timing is challenging, and may not be appropriate for conservative portfolios. However, we believe that macro economic indicators have strong longer-term predictive capability, and that it makes sense to pay attention to them.
We’d like a quantitative tool to help us anticipate strength or weakness. We began a search for clues in government data. In particular, the Federal Reserve retains a wealth of historical measures of our economy over many decades. After investing several person-months scouring the available Federal Reserve data, we identified 10 factors as the most useful in predicting market strength or weakness.”

Read the full blog here: The Augmented Trader: Forecasting Stock Market Strength Using Federal Reserve Data

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The Augmented Trader: Forecasting Stock Market Strength Using …

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