Each month I calculate the strength of the US economy using a math based model I call RPA (Recession Probability Analytics). When the number rises above 50 it means the US economy is in the bottom 50% of all economic conditions relative to it history. While far from perfect, the model has had an uncanny ability to correlate (negatively) with stock market returns. In other words, when the model moves above 50 the S&P 500 has fallen over 25% and when it is below 50 the S&P 500 has risen over 15%. I began publishing the model in November of 2007.
Here’s the full history of RPA from inception:
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RPA has improved for the 5th consecutive month and now stands at 32.78. The stock market remains strong though there has been significant weakness in US Government bonds the past few weeks.
Most areas of the US economy are slowly improving and RPA is the lowest its been in over a year. That's not to say that things can't worsen quickly - much like they did last summer. With very high gas prices, a lot of political mud slinging, and still mountains of debt both domestically and abroad there are certainly risks out there.
For now though the positives are outweighing the negatives and it is a good time to be an investor.
Since the "green light" issued in December the S&P 500 has now risen 15.9% - so despite the 3 month long warning last fall, RPA is still proving its worth.
If you have any questions or comments about RPA - feel free to use the comment feature on my blog. If you're getting this notice via email you can of course just hit the reply button and your email will come to me directly.
Thanks and have a great week,