01. Nov 2023
The DWS Macro Metric: Mapping Markets to Moves
- Understanding the business cycle in an economy is interesting, and important. It can provide insights into growth prospects (which are linked to corporate profits), likely policy paths, and inflation and unemployment. It can also inform Tactical Asset Allocation.
- However, usual methods for evaluating the business cycle can produce volatile outcomes, and rely on data that is both released on too slow a cadence (typically quarterly), and with too many revisions. Such approaches are more helpful in theory than in practice.
- In this paper, we build on the work of others to introduce the “DWS Macro Metric” (DMM), a simple gauge of the state of the economy that is based on intuitive, timely, and free, data, that captures the same spirit of business cycle analysis, and that helps us to map certain asset class moves.
- Our view is that the DMM is on the turn (moving from a peak to a trough), and that this suggests a recession is imminent. We discuss the empirical evidence of how yield curves have tended to behave before, during, and after such recessions, and believe it’s the mid-point (around 5-year maturity) that currently makes most sense in both the US and Europe.