Cyclical Fear Indicator vs. Stock Market (CPI, Volatility Indexes and Bond Spreads)

The Cyclical Fear Indicator adds up the averages of corporate bond option-adjusted spreads (BBB and below), equity volatility indexes, and year-over-year percent changes in consumer price indexes. Since adding the CPI component directly affects consumption, monetary policy (liquidity in the system) and real rates, I think it adds an additional forward looking component to the equity and credit risk indicators. It's a monthly indicator because the CPI gets reported monthly, so the spreads and volatility percentages are monthly averages. I compared the indicator to the Wilshire 5000's weekly price and percent change from a year ago. The interactive charts are from the St. Louis Fed's FRED and the data is courtesy of BofA Merrill Lynch, CBOE, Wilshire Associates and the Bureau of Labor Statistics (BLS).

Cyclical Fear Indicator vs. Wilshire 5000's Price and Percent Change from a Year Ago

Cyclical Fear Indicator vs. Wilshire 5000's Percent Change from a Year Ago

Cyclical Fear Indicator vs. Wilshire 5000 Index Price

Go to the ULTRA Cyclical Fear Indicator

I’m going to track a bunch of these indicators to try to predict major market moves and cycles. Using these indicators along with technical indicators on should improve the quality of my research.

(These FRED charts were reformatted on 11/17/2016.)

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