Market Signal Methodology
A full account of how our composite market conditions index is calculated.
Last updated: 2026-08-05
What the index is
Market Signal is a 0 to 100 index that FearGrid computes itself from public data. It combines three axes, inflation, rates and liquidity, and sentiment and stress, into a single number summarizing how supportive current macro and financial conditions are for risk assets. Higher means more supportive; lower means more stress. It is not a copy of any institution's published index, but our own measure built by processing public source data against our own baseline.
Data sources
Every input is freely available source data. Inflation, rates, dollar, and financial conditions series come from FRED, run by the St. Louis Fed (US Federal Reserve, Bureau of Labor Statistics, and Treasury data, public domain). The crypto fear and greed index comes from Alternative.me. Anyone can download the same source data and reproduce the calculation below.
The three components and their weights
Each component is converted to a 0 to 100 scale, then combined using the weights below. Financial conditions (sentiment and rates) carry more weight because they connect more directly to the equity regime.
- Sentiment and stress (45% weight): the risk (NFCIRISK) and credit (NFCICREDIT) subindices of the Chicago Fed's financial conditions index, plus the crypto fear and greed index. Lower financial stress and higher risk appetite raise the score.
- Rates and liquidity (35% weight): the spread between 10-year and 2-year US Treasury yields (T10Y2Y), plus the 6-month momentum of the Fed's broad dollar index (DTWEXBGS). A steeper curve and a stable dollar raise the score.
- Inflation (20% weight): how far core CPI (CPILFESL), year over year, sits from the Fed's 2% target. Moving away from target in either direction lowers the score.
Normalization against its own distribution
The defining feature of this index is that each component is converted not into an absolute level but into its position within its own distribution over the past three years. The three-year average maps to 50, each standard deviation moves the score by 20 points, and 2.5 standard deviations reach 0 and 100. There is a reason for this design. Early versions mapped each component to 0 to 100 using arbitrary fixed constants, and those constants did not match the actual range of variation: the index sat between 53 and 69 for three straight years and read as favorable 98% of the time, effectively behaving like a constant. Only after switching to its own distribution did each input come to mean how far from normal it currently sits, and only then did the index start using the full 0 to 100 range.
Why growth and employment were excluded
An earlier version included a growth and employment component combining initial jobless claims and the unemployment rate, but it is no longer part of the composite. Employment is a classic lagging indicator, so it kept a high score and propped the index up even while markets were already under stress. In July 2026, for example, the sentiment score fell to 36 while the growth score read 89, pushing the composite up into favorable territory. Judging that this diverged from observable conditions, growth was removed from the composite; employment is still shown separately in the summary and in the economic indicators section.
Score bands
The final score is displayed in five bands.
- 0 to 29 risk off: a stressed regime, unsupportive for risk assets
- 30 to 44 caution: risk factors somewhat have the upper hand
- 45 to 54 neutral: no clear direction
- 55 to 69 favorable: a supportive environment for risk assets
- 70 to 100 risk on: a strongly supportive environment for risk assets
Update frequency
The index refreshes every 6 hours. Its daily axis follows the business days of the US Treasury yield spread, while weekly financial conditions data and monthly inflation data carry their most recent published reading forward. New source data is reflected within 6 hours of release.
What the index is not
Market Signal is not a forecasting model for future prices and not a trading signal. It summarizes the current macro and financial backdrop in a single number, and because it is built from weekly and monthly public data, it is suited to reading the underlying backdrop rather than day-to-day swings. It also uses no third-party index with commercial redistribution restrictions, such as VIX, the S&P 500, or KOSPI. Volatility is represented through the Chicago Fed's financial conditions index and currency through the Fed's own dollar index, so the whole measure is reconstructed from public domain data.
More on the components
The concepts behind each component are explained in detail in these guides.