enthusiastic
The BCI at 262.0 is above last week’s level, raising the BCIp from 18.2 to 27.6 (see Figure 1, magenta curve). It warns that past performance suggests that a recession could be as early as 14 weeks away, but at least sooner. 28 weeks. (See Figure 2). BCIg, BCI’s 6-month smoothed annual growth rate is 1.3, down from last week’s 1.5 (see blue curve in Figure 1). When the BCIg crosses zero, historical performance indicates recession with an average lead of 12 weeks.
Figure 1 plots the BCIp, BCI, BCIg, and S&P 500 along with the threshold (red line) that must be crossed to declare a recession. Here the BCIp is well below the 25 threshold. Historical data from past recessions show that at this value the economy never recovered to avoid a recession. (iMarket Signals) Figure 2 plots the current value of BCIw along with the trajectory of BCIw through past recessions, ending at the best average of past recessions. (iMarket Signals)
Description of iM’s Business Cycle Index
In 2013, we created a business cycle index from the following underlying economic data:
- 10-Year Government Bond Yield (Daily)
- 3-month government bond yield (daily)
- S&P500 (Daily)
- Ongoing Claims Seasonally Adjusted (Weekly)
- All Employees: Private Company Total (Monthly)
- Newly built lots (monthly)
- New detached house sales (monthly)
The complete dataset has been available on FRED since 1967. The “real-time” aspect was taken into account when combining the components of the index. That is, data were included in the index only on the date of publication, not on the dates indicated in the series.
The BCI itself does not provide a recession signal, but after further manipulation of the series two indicators are extracted that reliably signal a looming recession.
- The 6-month smoothed annual growth rate of an economic series is a well-established method for extracting indicators from the series. Use this method to get the BCIg (growth). where BCIg is the calculated growth rate plus 6.0, and historical performance produces an average of 11 weeks leading recession signals when BCIg falls below zero.
- We also find that the BCI clearly retreats from its cyclical pre-recession peaks. This allowed the extraction of an alternative indicator, BCIp (deviation from previous peak of BCI). Historical performance shows that BCIp values fell by more than 25 an average of 20 weeks before a recession.
- In the 2014 article iM’s BCIw: A Weeks to Recession Indicator, the BCIp (BCI Deviation from Previous Peak) indicator was compared to the BCIw (BCIw) derived based on the NBER defined from the previous BCIp track. week). recession.
Two indicators, BCIg and BCIp, can be used as sell signals for ETFs that track stock markets and equities in general, such as SPY, IWV and VTI.
For each recession, Table 1 records the S&P 500’s pre-recession peak, BCIg signal day value, and subsequent inter-recession trough low. From these we calculate the losses avoided by closing the market on the day of the BCIg signal.
Table 1: SPY loss avoidance when exiting on BCIg Recession Warning. |
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Note |
1 |
2 |
3 |
Four |
Five |
6 |
7 |
8 |
recession |
P.Eek |
S.signal |
T.rough |
(PT)/P |
(ST)/S |
(PT) |
(ST) |
(ST)/(PT) |
January 70 |
106.16 |
93.24 |
69.29 |
36.1% |
25.7% |
36.87 |
23.95 |
65.0% |
December 1973 |
120.24 |
103.36 |
62.28 |
48.2% |
39.7% |
57.96 |
41.08 |
70.9% |
February 2080 |
115.2 |
100.3 |
98.22 |
17.1% |
2.1% |
16.98 |
2.08 |
12.2% |
August 81 |
140.52 |
128.64 |
102.42 |
27.1% |
20.5% |
38.1 |
26.22 |
68.8% |
August 90 |
368.95 |
332.92 |
295.46 |
19.9% |
11.3% |
73.49 |
37.46 |
51.0% |
April 2001 |
1520.77 |
1326.82 |
965.8 |
36.8% |
27.2% |
554.97 |
361.02 |
65.1% |
January 08 |
1565.15 |
1508.44 |
676.53 |
56.8% |
55.2% |
888.62 |
831.91 |
93.6% |
average of all recessions |
34.6% |
25.9% |
60.9% |
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Column notes:
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As shown in the last column of Table 2, following the BCIg signal from the recession indicators, we avoided an average of about 61% of the total market decline from the pre-recession peak to the inter-recession trough. I could have done it. You can see it in column 5. By closing the market on the signal day, we could have avoided an average loss of about 26%. Had we known the market peak, we could have avoided the 35% average drop as shown in column 4.
Figure 3 plots the history of BCI, BCIg, and LOG (S&P 500) since July 1967. Figure 4 plots BCIp’s history, his 56-year history. Show in a timely manner. The plot shows the weeks leading up to the recession.
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