Macro-Markets Risk Index: 8.8% | 1.31.2014

The US economic trend has decelerated in late-January, based on a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 8.8% on Thursday, January 30. That’s still at a level that suggests that business cycle risk remains low, but the recent decline in MMRI leaves the index near its lowest level in four months. For the moment, however, it doesn’t appear that the latest decrease in MMRI is a sign of trouble for the economy. MMRI appears to be stabilizing around the 8% mark, which is still well above 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 of 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: