Macro-Markets Risk Index

Includes: OIL, SPY
by: James Picerno

The US economic trend remains well above levels that signal imminent danger for the business cycle, according to a markets-based profile of macro conditions. The Macro-Markets Risk Index (MMRI) closed at 9.3% on Monday, September 16 - a level that suggests that business cycle risk remains low. Although the latest 9.3% value is near the lowest readings so far in 2013, it’s still well above the danger zone of 0%. If MMRI falls under 0%, that would be a sign that recession risk is elevated. By comparison, readings above 0% imply a bias for economic growth.

MMRI represents a subset of the Economic Trend and 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 relatively comprehensive set of indicators. 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 reports are published with a time lag. MMRI is intended to serve 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 percent change, plotted daily
• Credit spread (BofA ML US High Yield Master II Option-Adjusted Spread), inverted 250-trading day percent change, plotted daily
• Treasury yield curve (10-year Treasury yield less 3-month T-bill yield), no transformation, plotted daily
• Oil prices (iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL)), inverted 250-trading day percent change, plotted daily

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

Here's a closer review of how MMRI stacks up so far this year: