Simple Stock Model aggregates financial and economic data so that investors can easily form a comprehensive data-based outlook on the market. This is a completely free resource provided by Movement Capital

YIELD CURVE


The yield curve is a popular tool that is used to try to forecast the direction of the economy. More often than not, people talk about how a flat or inverted yield curve is bad for markets. I choose to analyze the movement of the curve rather than its static shape. Historically, a rapidly steepening curve has actually been more detrimental for stocks than a flat or inverted curve. In a steepening yield curve, short-term rates fall faster than long-term rates. In the past, steepening yield curves have been associated with the Federal Reserve quickly lowering the Federal Funds Rate during a recession.

Research: The Yield Curve as a Leading Indicator: Some Practical Issues by Estrella and Trubin, Yield Curve Basics by PIMCO
Filter Rule: If the spread between the 10-year yield and the 2-year yield has steepened by more than 50bps over the past 12-months, be out of the market
Current Reading: -0.05% (2s10s curve has flattened by 5bps over 12m)
Data Source: U.S. Treasury

HIGH YIELD SPREADS


The difference between the interest rate of a high yield bond and a Treasury of comparable maturity is called a high yield spread. The narrower the spread, the more optimistic investors are about the probability of risky U.S. corporations being able to cover their interest payments and eventually pay off their debts. When investors grow more uncertain, they’ll demand a higher rate on high yield bonds and cause spreads to widen.

Research: The Information in the High Yield Bond Spread for the Business Cycle by Gertler and Lown, High Yield: What’s the Spread? by Lord Abbett
Filter Rule: If high yield spreads are above their 12-month average, be out of the market
Notes: FRED doesn’t update Friday’s BAML data until Monday, so this metric is run off of Thursday’s data
Current Reading: 3.62%, less than the 12-month average of 4.07%
Data Source: Federal Reserve Economic Data

TED SPREAD


The TED spread is frequently cited as a measure of credit risk in the overall economy. The spread reflects the difference between two short-term interest rates: 3-month USD LIBOR and the 3-month U.S. Treasury yield. LIBOR reflects the rate at which banks borrow between each other on an unsecured basis. The perceived risk in the banking sector grows as the spread between LIBOR and T-bills widens out.

Articles: Understanding the TED Spread by Econbrowser, TED Spread by Wikipedia
Filter Rule: If the 4-week average of the TED spread is greater than 0.75%, be out of the market
Current Reading: 0.29%
Data Source: Global Rates and U.S. Treasury

SITE INFO

All data on Simple Stock Model is refreshed each weekend. The site has been updated to reflect data as of 9/22/2017



CONTACT ME

If you have any questions about this site or any of the indicators it covers, send me an e-mail at adam@movement.capital

Click the images below to go to my other websites.