Google Trends Give Insight & Perspective for Investors
Google hosts a website called Google Trends:
- https://www.google.com/trends
- which allows a visitor to search on a phrase &
- then graphically displays how popular the search phrase has ranked over a specific time period.
For example, the chart below shows the popularity of a search on “Halloween” over the past decade:
- It should be no surprise that interest for a search on “Halloween” spikes around October of every year
- but then promptly disappears after trick-or-treating has concluded.
Google Trends is an indispensable tool to provide evidence that volatility is mostly driven by the news.
- Recently, the dysfunction in our government has led us to yet another discussion
- about the potential for yet another “Government Shutdown” &
- yet another “Debt Ceiling” crisis.
- All we have to do is turn back the clock 2 years
- to revisit the last time we were forced to live through this drama inspired by our fearless leaders in D.C.
- Google Trends can show us the precise impact this panic had on equity markets in the graphic below
I ran a Google Trends analysis on the phrase “Government Shutdown”
- from mid-2013 through mid-2014 &
- then I compared this chart to the short-term performance of:
--- the S&P 500 (green line indicating large cap stocks),
--- the Russell 2000 (blue line indicating small cap stocks), and
--- the NASDAQ (red line indicating a mix of growth stocks).
- As the chart indicates, nearly all stocks in U.S. equity indices were impacted by the fear and panic inspired by the notion of a government shutdown.
3 observations are worth noting:
1. Stocks fell around 3% at the start of October. How is it possible that companies like Apple, Verizon, and Facebook could have their long-term earnings potential impacted by 3% in a matter of days over a government shutdown and/or debt ceiling breach? Here’s a hint: It’s not possible.
2. Once the panic subsided as Congress worked out a deal, the indices quickly recovered (right around the time when the interest of the government shutdown disappeared on Google) and continued to rise higher as investors shifted focus back on earnings and economic growth.
3. Those who sold into the panic locked in a loss. Yet again, panic selling did nothing here but hurt those investors who got caught up in the emotional component of equity markets.
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http://mikeonmarkets.com/2015/10/26/government-shutdowns-debt-ceilings-and-google-trends