Bear market indicator from Citi

I was surfing on Twitter when I found this tweet:

Let’s take a quick look to all this market indicator, especially the macro ones which are for me the most important/interesting since I’m trying to be a “macro guy”.

In the sentiment box we find the average equity risk premium, the intrastock correlation and the Panic/Euphoria index provided by Citi. We can see how in the past two crisis, in 2000 and 2007, the Panic/Euphoria index went above 0.38, a critical level according to the report, while it did not happen in 1990. At the moment the index is at 0.22, so it does not show any potential problem. The only indicator is flashing yellow is the intrastock correlation.

Even in that case only the composite S&P valuation index is flashing yellow, whereas all the others are white, thus no problems at all.

Profitability is ok, there’s no sign on any problem. The only indicators that seems to be on the edge are the Operating Margins LTM and the ROE, but for now they’re still good.

Balance sheet and Issuance look good too, the only indicator flashing yellow is the Buybacks % of EBITDA – LTM, but I’m not surprised about that. The issuance indicators are pretty realiable for bear market, thus we should pay attention to them.

On the macro side we have some quite bad signals. The High Yield Credit Spreads is the caution zone, but when the CLOs stuff is going to spur the HYG spreads is going through the roof. Banks seems to not tightening credit, and this is something I’ve noticed too, in general bank credit from all commercial banks is growing above 5% YoY. The yield curve is reducing the spread between the 10-2 Yr yields, but for now we did not go below zero, we’re just in caution zone. Laslty, the industrial production indicator is red, danger.

If we sum up all the indicators, we can conclude that the bear market is not going to happen immidiately, according to Citi. Only 30% of indicators are signalling warnings sign.