US Macro-Markets Risk Index

The Macro-Markets Risk Index (MMRI) is designed as a real-time proxy for business-cycle risk based on four data sets:

* US stocks (S&P 500), 252-trading day % change
* High yield credit spread (BofA ML US High Yield Master II Option-Adjusted Spread) inverted 252-trading day % change
* Treasury yield curve (10-yr Treasury yield less 3-month T-bill yield)
* Oil prices (US benchmark: WTI) inverted 252-trading day % change

Analyzing the market-price components of ETI and EMI separately offers a real-time approximation of macro conditions, according to the “wisdom of the crowd.”

Why look to the financial and commodity markets for insight into the economic trend? Timely signals. Conventional economic reports are published with a time lag. This analysis is intended for use as a supplement for developing real-time perspective until a complete data set is published for updating the monthly economic profile. The risk is that market-based busines-cycle forecasts have a higher degree of noise compared with conventional economic indicators.

A decline below 0% in MMRI (horizontal blue line in to chart at left) indicates that recession risk is elevated while readings above 0% imply that the economy will expand in the near-term future.