Falling below 0.5 = danger zone
The Macro Index combines leading economic indicators to determine the state of the U.S. economy. A reading of 1 means that the U.S. economy is in excellent shape, and a reading of 0 means that the U.S. economy is in terrible shape.
The Macro Index is upper-bound at 1 and lower-bound at 0. This means that it cannot rise above 1 and it cannot fall below 0.
So how can you use the Macro Investing Index to invest in the U.S. stock market? Afterall, this is based on leading macro economic data.
As we’ve demonstrated repeatedly here at Bull Markets, leading economic indicators are also leading stock market indicators because the stock market and the economy move in the same direction in the long term. This is how you know if the stock market’s decline is a correction, or the start of a much bigger bear market (e.g. a 30%+ decline).
- A 10-20% decline without significant macro deterioration = a correction. The economy is the dog, and the stock market is the tail. Sooner or later, the dog is going to wag the tail.
- A 10-20% decline with significant macro deterioration = the start of a much bigger decline, possibly 30%+
*Ray Dalio also supported this idea in this book Principles. He said that “economics usually leads politics, because politicians REACT to the economy”. This is generally true. The Fed is “data dependent”. This is why trading by “guessing what the Fed will do” is silly, to say the least. The Fed follows the data, so you should too. Look at the data, and you’ll mostly know what the Fed is going to do.
How to Zoom & Scroll
Zoom in/out: using your mouse, click & select an area of the chart
Scroll left/right: click SHIFT (on your keyboard) and drag the chart left/right using your mouse AT THE SAME TIME