Indicators · AI investment and markets
Financial stress
Normal Downturn signal
−0.52 in the week of 30 Oct 2026 (zero is normal).
The index is lower than 74% of the readings since 1993.
US recessions Periods when this signal was on
What it measures
The St Louis Fed's weekly index of stress in US financial markets, built from interest rates, the gaps between them, and how much market prices swing. Zero is normal.
Why it matters
Stress can spread between banks and between countries. Rescues and deposit insurance have contained it in the past; without them it can become a banking crisis.
When it triggers
Triggers when the index reaches 1.0, one standard deviation above normal.
Where it fits
A fall in technology shares and corporate credit. The argument predicts: Shares and corporate bonds most exposed to AI fall first, in a decline like the dot-com crash.
Other possible causes. Falls in share prices caused by rising interest rates (2022), and rises in borrowing costs unrelated to AI (2010–11).
A trigger can count as evidence for point 4 of our view, a stock market bust larger and faster than the dot-com crash.
The prediction
Open Set 8 Oct 2026
- If we are wrongtriggers, then stops
- Now−0.5230 Oct 2026
- Start−0.472 Oct 2026
- If we are right1.00 or aboveby 25 Dec 2026
- Severe9.67as in 2007–09
If our view is right, this signal triggers by 25 Dec 2026: the St Louis Fed's financial stress index reaches 1.00 or above. The date comes from the model, in which US unemployment's rise over three months is by then larger than 99% of three-month changes from 1990 to 2019. A downturn of that size would be expected to show in this measure as well.
If it triggers and then stops being triggered for four consecutive weeks, that counts against our view, which expects a downturn to deepen for several years once it begins. The deadline refers to the period the data cover. If it passes without a reading of 1.00 or above, that counts somewhat against our view.
When the rule was set
The rule was set on 24 Sep 2026, when it was not triggered. Its threshold is chosen by the author.
How often it has been on
Applied to past data at the end of each month from Aug 1994, using only what had been published by then, it was on in 16% of months to 2019 and 2% since 2020. More than six months from any US recession as dated by the National Bureau of Economic Research, it triggered in May 2010, Sep 2011 and Jan 2016. The rule was set with these years in view, so these figures cannot show how well it predicts.
Past triggers
On the data published at the time, it triggered in Mar 2001, Aug 2007, May 2010, Sep 2011, Jan 2016 and Mar 2020.