Macro & Market Environment Indicators
These indicators look beyond any single company to the broader economic and market backdrop — the kind of context that drives many of the sector-wide, market-moving stories covered on this site. See also how to read market-moving news.
VIX Index / 'Fear Index'
Derived from S&P 500 option prices, representing the market's expected volatility over the next 30 days (implied volatility).
A widely watched sentiment gauge reflecting how much risk the market is pricing in — hence its nickname, the 'fear index.'
Strengths: Gives a real-time read on market-wide risk aversion or complacency.
Watch out for: Based on the U.S. market (S&P 500), so it doesn't necessarily apply directly to other markets.
Combine with: The advance-decline ratio and credit spreads.
Yield Curve / Term Spread
Long-term government bond yield (e.g. 10-year) − Short-term yield (e.g. 2-year)
A negative spread ('inverted yield curve') has historically been watched as a leading signal of economic recession.
Strengths: A closely watched indicator of the market's view on the macroeconomic outlook.
Watch out for: There's typically a long and variable lag (often a year or more) between an inversion and any actual recession, so it's not useful for short-term timing.
Combine with: PMI and central bank policy stance.
Purchasing Managers' Index, PMI
Calculated from a survey covering items like new orders, production, and employment. A reading of 50 marks the line between expansion and contraction.
A fast, forward-looking gauge of business conditions in manufacturing and services.
Strengths: More timely than official statistics like GDP, and closely watched by markets.
Watch out for: A survey-based sentiment measure, which can diverge from what's actually happening in hard production data.
Combine with: The yield curve and other indicators like unemployment.
Yield Spread (Earnings Yield − Bond Yield)
Earnings yield (inverse of PER) − Long-term government bond yield
Compares stocks against bonds to judge which looks relatively cheap. A wider positive spread suggests stocks look cheap relative to bonds.
Strengths: Helps track capital rotation between asset classes (equities vs. fixed income).
Watch out for: The simple comparison becomes less reliable at extremely low or high interest-rate levels.
Combine with: Earnings yield and the trend in long-term rates.
Buffett Indicator
Total stock market capitalization ÷ Nominal GDP × 100
Compares the size of the stock market to the size of the real economy — a macro valuation gauge associated with investor Warren Buffett.
Strengths: Offers a big-picture read on long-term market-wide valuation extremes.
Watch out for: Structural shifts in the economy (like a growing share of high-margin tech companies in GDP) have led some to question simple comparisons against historical levels.
Combine with: Long-term interest rate levels and the market-average PER.
New Highs / New Lows & Advance-Decline Data
Count of stocks hitting new highs vs. new lows over a given period.
Measures market 'breadth' — whether a rally is broad-based or driven by just a handful of large stocks.
Strengths: Reveals the internal health of a rally or decline that a headline index number alone can hide.
Watch out for: The exact figures depend on the definition used (e.g. 52-week high vs. year-to-date high).
Combine with: The advance-decline ratio and the index level itself.
Arbitrage Long/Short Balances
Outstanding unwound positions from index arbitrage trading (futures vs. cash), specific to the Japanese market.
Represents supply/demand pressure that is effectively guaranteed to unwind in the future — a large arbitrage long balance implies future selling pressure, and vice versa for a short balance.
Strengths: Offers a more concrete forecast of future supply/demand flows than most other indicators.
Watch out for: Specific to the Japanese market and not directly applicable elsewhere.
Combine with: The margin buy/sell ratio and trading volume.
Investor-Type Flow Data
Net buying/selling amounts by investor category (foreign investors, individuals, corporations, etc.) as published by the exchange.
Tracks which type of market participant is driving buying or selling, revealing the underlying supply/demand structure.
Strengths: In the Japanese market especially, foreign investor flows are seen as having an outsized influence on overall market direction.
Watch out for: Published only weekly or monthly, so it can't capture real-time supply/demand shifts.
Combine with: The advance-decline ratio and the VIX index.