Macro-Markets Risk Index: 12.0% | 1.15.2013

The US economic trend has been relatively stable and positive in recent weeks, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 12.0% on Tuesday, January 14–a level that suggests that business cycle risk remains low. The current 12.0% value is well above the lowest reading in recent history (7.5% in mid-September 2013). More importantly, the current 12.0% value far exceeds the 0% danger zone. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By contrast, readings above 0% imply that the markets are anticipating/forecasting economic growth.

MMRI represents a subset of the Economic Trend & Momentum indices, a pair benchmarks that track the economy’s broad trend for signs of major turning points in the business cycle via a diversified set of indicators. Analyzing the market-price components separately offers a real-time approximation of macro conditions, according to the “wisdom of the crowd.” Why look at market data for insight into economic conditions? Timely signals. Conventional economic reports are published with a time lag. MMRI is intended for use as a supplement for developing perspective on the current month’s economic profile until a complete data set is published.

MMRI measures the daily median change of four indicators based on the following calculations:

• US stocks (S&P 500), 250-trading day % change, plotted daily
• Credit spread (BofA ML US High Yield Master II Option-Adjusted Spread), inverted 250-trading day % change, plotted daily
• Treasury yield curve (10-yr Treasury yield less 3-month T-bill yield), no transformation, plotted daily
• Oil prices (iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)), inverted 250-trading day % change, plotted daily

Here’s how MMRI compares on a daily basis since August 2007:

Here’s a review of how MMRI stacks up over the past 12 months: