Macro Regimes | Risk-On Risk-Off Market Environments

Macro Regimes: the four seas

REGIMES + RISK SCORE

Each Macro Regime is defined by the acceleration ↑ or deceleration ↓ of the Growth (G) and Inflation (I) cycles. Those simple directions segment the macro ocean into four distinct seas.

              Goldilocks
              G↑ I↓
            
              Growth accelerating, inflation decelerating. Historically the smoothest sailing for risk assets.

Reflation G↑ I↑

Growth and inflation both pick up as credit and policy support amplify the business cycle and push the tide higher.

Deflation G↓ I↓

Growth and inflation both slowing. Often where capital hides in quality, duration and defense while the storm passes.

Inflation G↓ I↑

Growth decelerating while inflation runs hot. Choppier waters, especially when liquidity is tightening and the dollar is strong.

0-7 Risk Bias Score

Each of the seven proprietary indicators is a switch: 1 for favorable, 0 for hostile. Add them up to a score from 0-7. If 4 or more switches are on, the regime is Risk-On. If 3 or fewer, it's Risk-Off:

0 — seas hostile 7 — seas inviting

Score: 4 / 7 Risk-On

Historically, higher scores have corresponded to stronger performance for risk assets. See the back-test results.

LOGIC Macro Regime Cheat Sheet

Click or tap the cheat sheet to enlarge.