Macro-Markets Risk Index

Includes: OIL, SPY
by: James Picerno

A markets-based profile of economic conditions suggests that business cycle risk remains low. The Macro-Markets Risk Index (MMRI) closed April 4 at 12.3%, well above the danger zone of 0% and within the 10%-15% range that has prevailed so far in 2013. When MMRI falls under 0%, recession risk is elevated; readings above 0% equate to economic growth.

MMRI represents a subset of the indicators in 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. Tracking 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 a 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:

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

For additional information on MMRI, see this article 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 4: