Global equities, commodities and bond yields trended higher over the past month on encouraging economic data and earnings reports. In particular, manufacturing surveys, GDP data and labour market numbers have remained consistent with a solid pace of economic activity that continues to trigger ongoing upward revisions to growth forecasts. In the ongoing third-quarter reporting season, U.S. earnings and sales results continue to outperform analyst consensus estimates with earnings per share (excl. the insurance sector) growing at a very healthy 7.4% y/y rate, in large part thanks to stellar results from mega-tech companies. Markets have a litany of event risk to manage through over coming weeks including awaiting U.S. President Trump’s nomination of the next Chairperson of the Federal Reserve, Congress introducing a long-awaited tax reform proposal (talk of phasing in corporate tax cuts has weighed on equities recently), a possible ramping up of NAFTA headline risk heading into early 2018 as termination threats linger, etc.
Nudge Theory is the behavioural idea that proves it is possible to steer people towards better decisions by presenting choices in different, and more encouraging, ways. It has received a great deal of publicity recently. That is because its originator Richard H. Thaler – a professor of economic and behavioural science at the University of Chicago – was awarded the Nobel Prize for Economics recently, a reward for 40 years of work spent studying human bias and temptation.
As many of those of you who follow my coverage of behavioral investing know, the psychology of choice – sometimes known as choice architecture – is a professional enthusiasm of mine. Why? Because part of my job involves preventing my clients from making ill-conceived investment decisions based on irrational choices.