Economic Data Is Noise And Investors Only Should Care About Corporate Earnings Hot

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“Most folks seem surprised when I tell them the sequester will have ‘little or no’ impact on markets,” says Ritholz, chief executive of FusionIQ, a quantitative research firm. “The correlation between how markets perform relative to economic events is actually quite weak.”

 
Ritholz cites this past week’s release of nonfarm payroll data, arguably the single most important economic data of the month. Ritholz says the effect of that the monthly net change is “almost statistically irrelevant.”
 
“The lesson for investors is that while these events may transfix us emotionally, they have almost zero impact on corporate earnings,” Ritholz writes in his blog, The Big Picture.  “This is the primary factor in driving valuation, and that is what ultimately drives your investment results.”
 
Ritholz is a really smart guy but I think he’s overstating the case against why economic numbers are not influential. While no one number matters that much, the data in aggregate ultimately is crucial in determining where corporate earnings are headed.

 

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