‘News Sentiment Impact’ and Its Influence on Market Movement

Over last few weeks, the debate on dichotomy between fundamentals of economy and direction of financial markets is at its peak. In a related discussion our 9th April insight, we also had spoken about how the signals from fundamentals of economy (such as jobless claims) and what Fed is doing are pulling the financial markets in US in opposite directions.

In this context, the impact of jobless claims news flow on markets is interesting. In the morning (USA time) on 30th April, it was reported that another 3.8 million Americans filed for unemployment benefits last week, sending the six-week total above 30 million since the coronavirus pandemic started to impact US economy. The news that initial jobless claims was 3.84 million in the week ended April 25 following 4.44 million in the prior week. This 3.8mn number was almost 10% more than expectations.

While a 1.5% decline in S&P 500 is not much but it is still against the trend of the week and the month. For a while, the argument was that Corona’s impact was in the price and it was Fed’s action which was much bigger than anticipated and that was the driving force behind market’s movement. Is the reaction of S&P 500 to jobless claims is indicating that this argument is reversing? Is the Fed action in the price already while Corona impact not yet and it could be worse and that will matter for markets?

Fig. 1: S&P 500 Index on 30th April (Source: Google)

It is too early to claim that. But the next few weeks will be interesting. Will US economy’s fundamentals get worse? Will this impact the markets negatively? Will Fed start doing more to arrest that? There are many questions and little clarity but news sentiment will be interesting to watch for sure.

Research Team
EM Alpha LLC

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About EMAlpha:

EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.

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