S&P 500 and UST 10YR: anticipate their trend with the help of Onalytica Indexes

Onalytica Indexes are a collection of alternative financial indices which reflect how economic and business issues such as recession, inflation, crisis, etc. are perceived by the population in general and by those with more influence in the debate.

Moreover, the indices are related to several classical financial indices and indicators of the state of the economy.

In a previous post it has been shown that the Recession-Index is often a leading indicator for the direction of increase/decrease of the GDP, both for UK and US Economies.

We discuss here two other examples that highlight the relationships between Onalytica Indexes and economic indices: we compare the US Recession-Index with S&P 500 and with US Treasury Bond Yields (UST 10YR).

First, we have compared the Equal-Weighted US Recession-Index with the S&P 500 index over the period August 2008 to May 2012 (see first chart below).

There is a strong relationship (a negative correlation of -0.76) between the two indices: usually, when the population’s fear of a recession increases, the value of S&P 500 drops; when the anticipation of a recession in the US Economy among the population diminishes, then the value of the S&P 500 index increases.


Another interesting example is the comparison between the US Recession-Index and the US Treasury Bond Yields (UST 10YR).

Although the two series are not correlated, on the chart below we have highlighted a few turning points in the direction of the Recession-Index which are a good indicator of substantial turns in the direction of the yield of the UST 10YR. The turning points generally appear well before the turning points in the yield. In fact, it seems that the bigger the upcoming change in the yield, the more leading the indicator is.