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I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me.

Specifically, I would like to know the list of attributes/data/factors I should be measuring and monitoring.

Most of the websites I can find are vague about this subject. They mostly generally list a few vague things such as GDP, inflation, treasury bond yields, etc. However, I would like to know the more specific data used. Take treasury bond yield for example. I have learnt from elsewhere that people are monitoring the 2Y yield vs 10Y yield for indication of an economical reversal. I can't find any website that gives this kind of working examples on a top-down approach.

Can you tell me what other specific measures/data the industry's professionals normally would look at in a top-down sector-wide analysis?

Thanks

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  • $\begingroup$ Newer approaches to aggregate analysis focused on dimension reduction allow economists to incorporate hundreds of time series when performing forecasting exercises and/or structural analysis. So, one way to answer this is to say that economist will consider everything that seems relevant to answer a given question. $\endgroup$ – 123 Dec 8 '18 at 14:17
  • $\begingroup$ @123 Thanks for the answer. Coincidentally this is the kind of analysis I am trying to do. Hence I am trying to source a wide enough lists of indicators for my exercise. Specifically in this case I am trying to understand what kind of indicators/factors/measures are commonly used in macro-economical analysis. Can you help? $\endgroup$ – ZXY Dec 8 '18 at 16:02
  • $\begingroup$ For something more concrete, look into the recent paper by McKraken and Ng. They make available a large set of macroeconomic time series for this sort of analysis. The paper details the common factors one might extract from these series for structural analysis (VAR, SVAR, etc.). They have both monthly and quarterly series available. I think that paper might be a good starting point. $\endgroup$ – 123 Dec 9 '18 at 2:14
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    $\begingroup$ @123 Found the paper. It appears to be quite relevant. Will give it a good read. Cheers $\endgroup$ – ZXY Dec 9 '18 at 12:01
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I am experienced with fixed income macro analysis. The short answer is that what you look at depends on what you want to know.

In rates analysis, the key driver for bond yields (hence prices) is the expected path for the overnight rate. The central bank sets the overnight rate. So you need to be interested in what the central bank is looking at.

The Bank of Canada is a fairly typical developed central bank, and has very good primers on their decision-making process. They have some pages describing indicators they look at here: link to BoC page. You could draw analogies to indicators in other countries.

(With regards to the 2/10 slope, that is indication of the expected path of short rates. The usual story is that if the slope is negative - 10-year yield less than the 2-year - rate cuts are expected, which normally happens in a recession. There is a huge literature on the “yield curve” for forecasting; should be easy to find something with a web search.)

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