The stock market seems like it's about nothing but hard data. Numbers. Things like economic statistics and corporate earnings figures. Just hard-nosed, uncaring Vulcans in suits digesting numbers and making logical decisions based on computer-driven, analytical, algorithm-determined evidence.
Actually...Wall Street has a lot of feels. But being hard-nosed, uncaring Vulcans (or at least seeing themselves that way), people on Wall Street don't want to admit how squishy trading decisions can get. They don't want to come out and say that a lot of what they do is driven by phycology and primal instincts, like fear and greed.
So they don't call it "feelings." They call it "sentiment." And they try to attach numbers to them. Sentiment indicators.
These indicators try to measure overall market sentiment...basically showing how bearish or bullish the market is. They quantify the overall vibe on Wall Street, putting a number on the general group feeling. Er, sentiment.
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Finance: What is the Barrons Confidence ...14 Views
Finance a la shmoop...what is the baron's confidence index
well Barron's is an old-tiny publisher of Wall Street data and today it's a
stodgy magazine catering to sophisticated financial readers well the [Magazine of barron's confidence index]
magazine has fiercely opinionated readers and it began to take advantage
of them first with simple old-school polls managed by its journalists before
computers were really a thing and then it began to codify an index the densely
packed brain power that it was surveying as to where the markets and the world
was heading so one outcome of this outbound research effort was the bond [Bond index equalling Barron's confidence index]
index or Baron's confidence index which is calculated by dividing the average
yield to maturity on what is generally double-a and triple-a grade bonds by the
average yield to maturity on what is generally double B ish grade bonds got
it? So triple A double A over the triple B'ers.. Well why would
you do this strange calculation in the first place
well it reflects its audience's attitude about credit risk the presumption among
pretty much everyone is that the safe bet ie US government paper is just a [100 dollar bill stamped safe]
reflection of inflation more or less and everything else or at least all other
credit is pegged to that very safe US paper so it sets the standard against
which the riskier credit is measured it's stable since the Barron's index is
a bond risk index it is in essence a calculation of its audience's confidence
in the US economy relative to everything else generally speaking in a good or
growing economy there are very few bankruptcies or defaults why well partly
just because times are good and people are buying you know stuff [People walking in a shopping mall]
yeah even stuff like that and if a given company individually stumbles well there
are often competitors who are doing well and who would likely acquire that
company maybe not for a huge premium but at least they'd pay off the company's
debt so it would be money good right for those triple B's so it's bonds even if
lowly rated would go back to par and everyone would get paid off as planned [company and competitor smiling]
so the index isn't an absolute measure of anything really it has to be viewed
relative to wherever it was trading last week
last month last year when investors are confident the spreads for bond yields
are narrower and the ratio is higher.. well think about the intermediate
bond yields but when the ratio is high and increasing it means that faith and [Bond yield graph appears]
the economy is growing right because that denominator yield shrinks because
grade triple B's instead of having to yield 12 percent yield like ten or eight
and inversely the ratio is lower and decreasing demonstrating less faith in
the economy when things go the other way and when the economy is really in the
toilet well expect to hear a lot of this sound [Tumbleweed flies past a man in a clothing store]