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Chart: US Economic Noise Index

June 21, 2018

Here's a quick update of an obscure and unusual indicator which I call the Economic Noise Index for the USA, shown here against the S&P500.  The economic noise index combines the signal from the economic policy uncertainty index and the economic surprise index (taking the average z-score of each), such that high readings of the indicator represent positive noise [positive economic surprises and less policy uncertainty] and low readings represent negative noise [economic data surprising to the downside and elevated policy uncertainty].  Notably, as of recently the US economic noise index has been rolling over.  The indicator doesn't have a perfect record of picking tops in the stockmarket, but it has worked before e.g. in 2010, 2011, among other times.  So it's something to be mindful of, particularly as it appears much of the rebound in the S&P500 has been related to a big short squeeze.

 

 

 

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