Recession Probability Update - March 2012
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 4th consecutive month and now stands at 38.74. The market has taken notice with the best 2 month start to a calendar year since 1991.
The economy is improving in areas like new home starts, unemployment, and consumer confidence. The headwinds are in rising energy costs and sovereign debts both here (in the US) and abroad. For now the tailwinds are stronger than the headwinds creating a relatively safe time for investors to be invested.
Since the "green light" issued in December the S&P 500 has now risen 12.2% - 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,