Realized and Anticipated Macroeconomic Conditions Forecast Stock Returns

We construct daily real-time indices capturing the public information on realized and anticipated economic activity. The one-month change in realized fundamentals predicts U.S. stock returns across horizons with strongest results between a month and a quarter. The information in anticipated fundamentals that is orthogonal to the realized data predicts returns even more strongly, particularly at longer horizons of up to two quarters. Splitting the sample into times of high versus low uncertainty, as measured by the cross-sectional dispersion of economist forecasts, we show that the predictability is largely concentrated in high-uncertainty times. Finally, extending the analysis internationally, we find similar results that are curiously stronger when U.S. data are used as predictors rather than global composites or local data