We analyze financial series based on the previous highest peak of the series in a business cycle, which we term the “off-peak-mode” of an index. Using our BCI in off-peak-mode we achieve average leads to recessions of 20 weeks. Exiting the stock market at these early signals significantly improves investment performance. Furthermore, the current level of the BCI in off-peak-mode near 100 provides confirmation that a recession is not likely to occur within the next year.
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Exit Signals for the Stock Market from iM’s Business Cycle Index
There is no bell ringing when the market peaks before recessions, but indicators such as iMarketSignals’ Business Cycle Index (BCI) are useful in identifying recession starts well in advance. By exiting the stock market at the time of BCI’s recession signals, investors would still have avoided about 60% of the market declines from pre-recession peaks to inter-recession troughs on average.
iM’s Business Cycle Index replaces ECRI’s WLI
Knowing when the U.S. Economy is heading for recession is paramount for successful investment decisions. We have designed the weekly iMarketSignals Business Cycle Index (BCI) so it would have provided early reliably warnings for the past seven recessions. We achieved recessions leads averaging 11 weeks, all with similar lengths. The absence of false positives, for the analyzed time period of 1967 to 2013, enhances the quality and reliability of the recession warnings.
Does ECRI’s WLI Remain a Usable Indicator?
We now discovered that the index is excessively driven by one of its components, the ratio of “ten year treasury bond yield” to “BAA corporate bond yield.”
Why is M2 Still a Component of ECRI’s WLI?
M2 has been downgraded and excluded as a leading indicator, yet ECRI still include it in their WLI.
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We are Engineers and not Investment Advisers,
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