These research findings underscore the importance of gauging and reacting appropriately to the economic trend. For example, when we are confident that the economy is in recession, as indicated by the AEI, we steadily and quickly reduce equity exposure and add more fixed income. During times when the economic trend is positive, we typically add equity exposure.
But we don’t make such moves arbitrarily or in reaction to one or two numbers. We use the AEI as a powerful tool for asset allocation and to help us stay the course even when the stock market appears to be overreacting to some number—for example, during stock market drops that are likely to be transitory during economic expansions. The stock market might sell off sharply for a short time, but if we see no change in the economic fundamentals, we will stay the course. In those instances, when the stock market comes back a short while later, we’ll give ourselves a little pat on the back for protecting our clients by avoiding overreaction. We don’t take credit for being “right”; rather, we credit the AEI and the discipline it infuses.
The most important investment decision, of course, is determining the ratio of stocks and bonds. At Astor, our rationale is driven by economic fundamentals. By using the AEI, we can discern the economic trend through the noise the data.
John Eckstein is the CIO at Astor Investment Management, a participant in the ETF Strategist Channel.
Disclosure Information
All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice or services in any state where to do so would be unlawful. Analysis and research are provided for informational purposes only, not for trading or investing purposes. All opinions expressed are as of the date of publication and subject to change. Astor and its affiliates are not liable for the accuracy, usefulness or availability of any such information or liable for any trading or investing based on such information.
The Astor Economic Index® is a proprietary index created by Astor Investment Management LLC. It represents an aggregation of various economic data points: including output and employment indicators. The Astor Economic Index® is designed to track the varying levels of growth within the U.S. economy by analyzing current trends against historical data. The Astor Economic Index® is not an investable product. When investing, there are multiple factors to consider. The Astor Economic Index® should not be used as the sole determining factor for your investment decisions. The Index is based on retroactive data points and may be subject to hindsight bias. There is no guarantee the Index will produce the same results in the future. The Astor Economic Index® is a tool created and used by Astor. All conclusions are those of Astor and are subject to change. 310161-506