Macro-Markets Risk Index

A markets-based profile of US economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed yesterday (April 22) at 13.7%–well above the danger zone of 0% and within the 10%-to-15% range that’s prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate with economic growth.

MMRI represents a subset of the indicators in 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. Analyzing the market-price components separately offers a real-time evaluation of macro conditions, according to the “wisdom of the crowd.” By contrast, conventional economic data series are published with a time lag. MMRI is intended as a supplement for developing perspective on the current month’s economic trend until the formal updates are published.

MMRI is a daily average of four indicators, calculated as follows:

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

For additional information on MMRI, see this post that introduced the index. Meanwhile, Here’s how MMRI compares on a daily basis since August 2007:

Here’s how MMRI stacks up so far this year, through April 22:

This piece is cross-posted from The Capital Spectator with permission.