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The Power of Granular Nowcasting

The approach used by traditional Wall Street equity analysts in informing their views on specific companies has a severe shortcoming. They typically rely on a handful of high-level economic indicators such as Industrial Production, and PMI/ISM to track the global economy. However, with this approach it is impossible to estimate with reasonable precision what the rapid changes in the global economy are implying for a specific company.


We highlight this shortcoming through a graph, and suggest an alternative approach to getting a far more precise read on company revenues. The shortcoming lies in the fact that specific industries within the economy are more relevant to each company’s outcome than the macro picture, and the trends in specific industries often differ significantly from the macro trends. Hence, in order to differentiate between winners and losers (on a short term basis), it is far more important to track granular regional industry trends, and then use that knowledge to analyze companies – an approach we take with AKAnomics Nowcasting. In our approach we track and analyze thousands of macroeconomic variables at granular levels, creating over 600 regional industry indexes, and intelligently mapping them to company revenues. This approach provides far greater insights into relative performance of companies within the sector – something that is of great interest to hedge funds and the broader investment community.


We start with the blue line in the graph below that shows 3-month rolling Y/Y growth of US industrial production, a common indicator used by analysts. We overlay on it the red line which is derived from AKAnomics Nowcasting that shows on a weekly basis the difference between the number of companies that are estimated to beat revenues and the number of companies that are estimated to miss revenues. The Akanomics indicator is a good indicator for “relative performance” within the sector. Apart from the Covid period of 2020/2021 when macro data was disconnected from company’s performance, the red line and blue line tend to move together, as expected. However, the red line with its fluctuations provides insights into how many companies (as well as which companies) are likely to fare better or worse than others, based upon the specific industries that they are exposed to – something that cannot be derived from the broad-brush approach of using the blue line. In short, AKAnomics is able to provide company insights “relative to the sector” even while confirming that the outcome across the companies broadly follows the contours of US Industrial production.

We now highlight the orange line in the graph that shows AKAnomics Nowcasting index of 3-month rolling Y/Y growth of “global industrial production” accumulated from a string of macro and industry data we follow across the world. We point out that US accounts for only half of the business for the 100+ US Industrials companies we track. Hence following macro/industry picture globally is important. As a result we see that our Nowcasting data (red line) follows our global indicator (orange line) better than US industrial production (blue line). You can see that difference in the period 2018-2020.



 

This example shows that not only is it important to follow granular macro/industry details not only within the US but globally.


Please reach out to us to see how our Nowcasting products can help with your portfolios across the US Industrials, Materials, and Consumer Discretionary names!

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