Why Investors Are Obsessed with Economic Data

Investors are increasingly jittery about economic data, even reports that once flew under the radar. As the Federal Reserve works to lower interest rates and guide the economy toward a soft landing, market reactions have become more pronounced.

While crucial reports like monthly job numbers still draw attention, even routine data releases now have the power to move markets. Jack Janasiewicz, a portfolio manager at Natixis Investment Managers Solutions, attributes this to investors being “hyper-sensitive” to the constant stream of news, leading to swift and sometimes exaggerated market reactions.

Bespoke Investment Group analyzed 25 years of data and found that Wall Street has seen greater volatility in the last four years, especially on days when economic data is released. Before the pandemic, the S&P 500 averaged a daily move of 0.81% on such days, but that figure has risen to 0.94% since March 2020.

In their analysis of 34 economic indicators, Bespoke noted that previously overlooked data points have gained importance. Releases like the University of Michigan’s consumer confidence survey, ADP private payrolls, and durable-goods orders now frequently coincide with significant market moves—often 1% or more. Prior to the pandemic, such sharp reactions were rare.

Jeffrey Roach, chief economist at LPL Financial, pointed to the Labor Department’s JOLTS report as a prime example of a dataset that has become a focal point during the recent economic tightening. Once ignored, it’s now closely watched, especially as the Fed monitors labor tightness through the openings-to-unemployed ratio.

Market volatility has also surged around inflation data and Federal Reserve decision days. Before the pandemic, the average daily market move on Fed-decision days was 0.88%, but this has jumped to 1.17% since 2020. Janasiewicz suggests that rising market leverage and the use of short-term options trading could be fueling these swings.

Despite ongoing recession fears, recent economic reports have kept markets buoyant, with the S&P 500 and Dow Jones rallying on the back of strong data. However, Janasiewicz warns that investors remain on edge, poised to exit quickly at any hint of economic weakness, driven by the fear of getting caught in a selloff.