Tuesday, August 8, 2023

Macroeconomic uncertainty still high post pandemic


 

Using the latest index of macroeconomic uncertainty that is based on over 132 macro time series, we can see that unlike other post-recession periods, uncertainty has remained elevated. The only comparable period is the early 1980's when there were twin recessions. All other periods show a decline to long-term averages. This elevated uncertainty is applicable for 1-mont, 3-mont, and 12-month horizons although the data end at the end of 2022. 

The high uncertainty has clearly impacted investment allocation decisions; however, it is still surprising that risky asset returns have moved higher. Perhaps an updated series will show a decline consistent with the fall in VIX and MOVE index and thus create normalization and a demand for riskier assets. 

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