Do You Feel More Negative These Days? Blame the Algorithm

Consumer sentiment is more negative today than it was during the Great Financial Crisis in 2008. Could the difference be the rise of social media’s influence?

A man scratches his head with a questioning look on his face.
(Image credit: Getty Images)

The algorithm is winning. We live in a time where every click we make and every step we take generates metadata; sometimes just uttering a thought out loud can trigger an ad on a social media feed. This is also an age where disinformation and political leanings have been weaponized to great effect on social media. So how does the algorithm affect the leading sentiment indicators studied by investors today? Based on a comparison of the current economic cycle and the Great Financial Crisis in 2008, quite a lot.

Late last year, the market had already decided the Federal Reserve Bank had reached the end of its interest rate tightening cycle. Investors were mildly optimistic the Fed would engineer a “soft landing” with respect to a recession. Inflation, which peaked in June 2022 at more than 9%, had drifted back down to 3.2% by October. This downward trend in inflation was happening not because demand had cratered. In fact, the U.S. gross domestic product (GDP) was still up nearly 5% in the third quarter of 2023.

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Blaine Townsend, CIMC®, CIMA®
Executive Vice President and Director, Sustainable, Responsible and Impact Investing, Bailard

Blaine serves as an Executive Vice President and the Director of Bailard’s Sustainable, Responsible and Impact Investing (SRII) group. He is also portfolio manager of Bailard’s Smart ESG™ US All Cap Strategy, Broad Impact Strategy, and Small Cap Value ESG Strategy. Blaine is on both Bailard’s fundamental and SRII investment committees, conducts social research, oversees corporate engagement efforts and maintains client relationships.