The Stock Market Cares More About Your Feelings Than Covid Data, Alt Data Shows

Indexica creates predictive signals by measuring collective consciousness

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Jul 28, 2020, 08:36 ET

MALIBU, Calif., July 28, 2020 /PRNewswire/ -- 2020 has seen an explosive adoption of alternative data. Indexica, a leader in the NLP alternative data space, recently announced the release of a new quantitative signals product. Research performed by Indexica using this data during 2020 shows that in March and February of 2020, hard metrics such Covid-19 case numbers, hospitalizations, and death rates had to be measured in order to anticipate the March crash. This kind of real time monitoring of actual events moved markets and predictive signals had to immediately incorporate them to be successful.

Now, however, it's all about opinions, specifically the reduction in fear. While the pandemic has caused an increase in interest in alternative data, what worked early in the pandemic is now useless, since opinions are what matter. This is a typical cycle for predictive signals, which initially must measure something tangible and then shift gears to measuring emotions. To have reaped the benefits of the recent market gains and to reap the benefits of the next moves, monitoring feelings are what matter. While most hard Covid-19 metrics are currently going in the 'wrong' direction, fear is going in the 'right' direction.

Understanding how people feel about the virus has been key to understanding the unusual American willingness to live with it rather than re-shut down, enabling economic growth in certain industries. Other opinion metrics worth measuring, include anger, uncertainty, surprise, description share, diversity, and focus.

Indexica's scours the news and measures event data and opinion data in order to "find" predictive signals if there are any. If events matter, that's what will go into their real-time self-updating signals. If collective conscious is what matters, that's what they'll include. Sometimes both become index constituents. This ML process applies to equities, commodities, currencies, and the VIX.

This is a powerful tool, impossible to make happen with only human minds. Machine intelligence is needed. Zak Selbert, CEO at Indexica commented, "It's tough to identify which factors persistently move markets but we know that the shifting subjective feelings we collectively hold, which differ drastically by state, country, political affiliation, and time period, move markets. For this reason, investors must measure them at scale, constantly." And because the yardstick for what moves markets will evolve, using language tonality rather than hard data alone has and will result in more accurate predictive signals.