The Federal Reserve Board published research examining how equity markets respond to macroeconomic news and how those responses relate to the real economy. The paper proposes an activity news index and a price news index to summarize macro surprises and links stock price reactions to subsequent changes in firm performance and aggregate growth. The two indexes together explain 34% of the variation in quarterly stock price returns. Periods with favorable macroeconomic surprises are associated with higher revenues, profitability, financing, and investment among publicly traded firms, with the firm-level effects building up to an expansion in the real side of the U.S. economy.
Federal Reserve Board 2025-01-31
Federal Reserve Board research finds macro news indexes explain 34% of quarterly stock return variation and track real activity
The Federal Reserve Board released research analyzing equity market reactions to macroeconomic news and their impact on the real economy. It introduces an activity news index and a price news index, which together account for 34% of the variation in quarterly stock price returns. Positive macroeconomic surprises correlate with increased revenues, profitability, financing, and investment, contributing to U.S. economic expansion.