Market Euphoria Index (MEI)

The Cyclically Adjusted Risk Premium (CARP), first described here by Georg Vrba, is a financial indicator designed to provide investors with a nuanced perspective on market valuations by integrating the renowned Shiller CAPE (Cyclically Adjusted Price-to-Earnings) ratio with the crucial element of bond yields. CARP encapsulates a comprehensive view of the market's attractiveness by assessing the relative appeal of stocks compared to bonds.

Formula: 100 / CAPE - 10Y Treasury yield

Since 1992, the CARP has ranged between -2.34 and 3.88 with a mean of -0.65 and a median of -0.71. Higher absolute CARP values are indicative of cheaper equities. However, for ease of comparison, we've scaled CARP values from 0 to 100 with higher scaled values indicating lower absolute CARP (more expensive stocks).

Learn more about CARP.

The Normalized Buffett Indicator (NBI) is a financial metric designed to enhance the insightful perspective offered by the traditional Buffett Indicator. This innovative valuation indicator acknowledges the dynamic nature of profit margins within the S&P 500 and introduces a normalizing effect to better capture the nuanced relationship between market capitalization, economic output, and profit margins. Abbreviated as NBI, this indicator offers investors a refined tool for assessing market valuations by accounting for the influence of varying profit margins on overall market conditions.

Formula: (total Wilshire 5000 market cap / GDP) / 24-month SMA of SPX profit margin

Since 1992, the NBI has ranged between 14.87 and 206.70 with a mean of 81.12 and a median of 63.20. Both higher absolute and scaled (0 - 100) NBI values indicate more expensive equities.

Learn more about NBI.

The VIX, or the CBOE Volatility Index, is a popular measure of market volatility and investor sentiment. It is often referred to as the "fear gauge" or "fear index" because it tends to rise during periods of market uncertainty, fear, or stress. The VIX is created and maintained by the Chicago Board Options Exchange (CBOE). The VIX is unique because it represents the market's perception of volatility as an asset class. When the VIX is high, it suggests that market participants anticipate larger price fluctuations in the S&P 500 in the near future.

Traders and investors often use the VIX as a benchmark to gauge the level of fear or complacency in the market. A VIX reading below 20 is often considered low, suggesting a relatively calm market, while a reading above 30 may indicate increased anxiety and uncertainty. The VIX is considered a valuable indicator of market sentiment. A rapid increase in the VIX may signal a potential market decline, while a sharp decrease may indicate a more optimistic market outlook.

Since 1992, the VIX has ranged between 11.86 and 38.57 with a mean of 18.24 and a median of 18.36 on an absolute basis. For ease of comparison, we've normalized the absolute values on 0-100 scale. On a scaled basis, the mean is 81.45, and the median is 81.13. Higher scaled (0 - 100) values represent a lower absolute VIX level, indicating that investors expect less volatility in markets.

Margin Debt to GDP is a novel economic indicator designed to provide a normalized perspective on the level of margin debt within the financial markets. Unlike the conventional Margin Debt indicator, which measures the absolute amount of borrowed funds used to purchase securities, the Margin Debt to GDP Ratio adjusts for changes in the overall size of the economy over time.

The ratio accounts for the growth of the economy by dividing the total margin debt by the Gross Domestic Product (GDP). This normalization allows for a more meaningful comparison of margin debt levels across different economic periods, adjusting for changes in the scale of economic activity. By normalizing margin debt relative to GDP, the indicator facilitates comparisons over extended periods. This is crucial in assessing whether margin debt levels are proportionate to the size and dynamics of the overall economy, providing a more insightful understanding of potential risks or imbalances.

Since 1992, Margin Debt to GDP has ranged between 0.72 and 2.64 with a mean of 1.44 and a median of 1.41 on an absolute basis. For ease of comparison, we've normalized the absolute values on 0-100 scale. On a scaled basis, the mean is 38.50, and the median is 36.51. Both higher absolute and scaled (0 - 100) values indicate increased investor risk appetite.