Signal versus noise

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Investment Strategy House Views

A lot has happened since the summer. Investors have been forced to digest a sequence of complex news about emerging markets, trade tensions, Brexit, the Fed, China, as well as earnings and economic data. There has been a lot of “noise” around, and investment returns have been very disappointing. As the economist Fischer Black put it: “why do people trade on noise? One reason is that they like to do it. Another is that there is so much noise around that they don’t know they are trading on noise. They think they are trading on information.” So as we sort the “signal” from the “noise” and work out what has really been going on, let’s start with recent market performance. The bumper returns of 2017 have given way to something more disappointing – low overall total returns, negative performance in emerging markets, and more volatility in financial markets.