The Economist: a contrarian indicator?

The magazine cover indicator is supposed to be a contrarian signal, says The Economist – something that would seem to apply to its own covers.

Andrew Van Sickle
By
published
in Features

The magazine cover indicator is supposed to be a contrarian signal, notes Buttonwood on Economist.com. The idea is that once the mainstream press gets round to covering a big story or trend, most of the upswing or downswing has already happened. BusinessWeek is known for proclaiming "the death of equities" close to the bottom of a bear market.

Analysts at Citigroup have applied the test to The Economist's covers. They selected 44 from between 1998 and 2016 that appeared to make an optimistic or pessimistic point about a market. The results were "a little chastening": buying the asset on a bearish cover resulted in an 18% return over the following year; selling on a bullish one led to a return of 7.5%.

Yet some calls, such as scepticism about the tech bubble, were right but more than a year early. In some cases the link between the cover and the view of an asset class was a stretch: was a cover against Scottish independence really a bearish view on UK equities, for instance? This is all good fun, concludes Buttonwood, but not something to take too seriously.

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Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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