Each year, the media seeks an answer to the world’s least pressing question: what’s the mood like in Davos? And, each year, the answer’s the same: it’s worse.
“In the past, the mood at Davos has oscillated between extreme optimism and unbridled gloom,” Guardian economics editor Larry Elliott writes. “This year it looks certain to be the latter.” His is a safe prediction because there is little precedent for the former. In 2022 the Guardian described the mood at the World Economic Forum as “apocalyptic”. In 2020, “amid concern that a crisis is looming”, WEF was “not exactly a party mood”. 2019 was “muted”. 2018 was “pessimistic”. 2017 was all about “anxiety, defensiveness and self-reproach”. 2016 was “downbeat”. 2015 was “damp”. Etc.
Nearly every WEF dispatch judges corporate and political confidence to be weaker than the beforetimes. A negative tilt can be seen in a media word cloud of paragraphs that contain the phrase “the mood in Davos”:
A popular trope among the Davos press corps is to claim this prevailing mood is always wrong, so their trip has value to investors as a contrary indicator. Jeremy Warner of the Daily Telegraph makes this claim annually, perhaps in homage to The Times’s Anatole Kaletsky.
But if the vibes they divine are mostly either “bad” or “worsening”, does the contrary indicator theory still hold? Or does cynicism do Davos Man a disservice?
To find out, we scraped mainstream English language media for articles published between 1985 and today that have Davos, WEF or World Economic Forum in the headline. Of the 15,345 reports in the sample, slightly over 22 per cent contain the phrase “the mood”:
We then searched the full data set for “sombre” or “somber”, the go-to mood descriptor among WEF commentators. A simple count shows sombreness was at a record high around the January 2020 meeting, a few months before the world locked down:
Potentially more informative is to show “sombre” or “somber” as a percentage of articles published.
Early years are distorted by low sample sizes — 1987 has a sombre ratio of 100 per cent based on one article, for example — so the graph below begins in the mid 1990s. Within that range, the ratio peaks in 2009 and the latter stages of the banking crisis:
What might be more surprising is that after just 19 days of 2023, and with WEF yet to conclude, the year-to-date sombre ratio is already the fourth highest on record. That looks quite bad.
Searching for other mood clichés reveals something even worse:
Gloom is clearly the theme of 2023. “Subdued” and “cautious optimism” have been trending normally, at 13 per cent and 4 per cent of total WEF articles respectively, but “gloomy” has an unprecedented 89 per cent media share. That’s four-standard-deviations-from-mean gloom.
Is this significant? Probably not. The high reading is in part because WEF’s 2023 Chief Economists Outlook begins: “Although there are some grounds for optimism, such as easing inflationary pressures, many aspects of the outlook remain gloomy.” Newswire reports of PwC’s annual CEO survey also lean heavily on the G word, providing feedstock for churnalism. Then there’s the complication that phrases like “less gloomy” are registering as a false negative.
Searching for specific tonal phrases delivers cleaner results. Here’s the count of WEF articles that reference “more upbeat”, “more optimistic” or “more confident” versus those referencing “less upbeat”, less optimistic” or “less confident”:
And here are the same findings expressed as a simplified ratio. (The labels on each bar show exact ratios):
Pulling all the numbers together, the mood music from Davos over the past three decades has looked like this:
. . . Or sorted by the strength of negativity:
On to which we can put the MSCI World’s percentage performance for that year (left axis):
Or to put it another way, here’s Davos pessimism normalised to the 81 average against an inverted view of the MSCI performance:
What have we learned? Not much. The above chart shows a negative correlation coefficient of just 0.23 between WEF relative pessimism levels and MSCI World performance. That’s weak to negligible, as correlations go, meaning the reverse-indicator trope doesn’t stack up.
This isn’t to suggest WEF mood works as a regular indicator either, to be clear. Weak correlations are weak both ways. In years when global markets went down, Davos pessimism was above average four times and below average four times. In years when markets went up, Davos pessimism was below average 10 times and above average 10 times. Absolute neutrality, in 2017, coincided with a 20 per cent MSCI gain.
This year’s already elevated pessimism might turn out similar to 2008 and 2001, when market fell a lot, or it might be more like 1996 and 2019, when markets rose a lot. Who knows? Davos Man certainly doesn’t appear to, and neither do those tasked with judging his disposition.
The bottom line is the one you probably knew already, but there’s no harm in having a preconception reinforced. As a predictor of stock market performance, the mood in Davos, like so much else about it, is shown to be entirely irrelevant.
Further reading:
— FT.com/Davos
Source: Economy - ft.com
