# Methodology

Source observations become features, features form eight signals, and grouped evidence families form four layers. These are provisional stress scores, not probabilities.

## Normalize against prior history

`z = (current value − prior mean) / prior sample standard deviation`

`score = clamp(50 + 20 × direction × z, 0, 100)`

The current observation is excluded from its reference history. A score of 50 means the historical mean, not a 50% chance of a crash. Missing inputs, stale observations and insufficient history prevent scoring; they are never replaced with zero.

## Signals

Each signal is the weighted sum of its component scores. Every required component must be available; weights are never redistributed around missing data.

- **Credit confirmation:** HY OAS 35% + HY widening · 63 sessions 20% + IG OAS 15% + HY–IG divergence · 20 sessions 15% + C&I lending standards 15%
- **Price-trend confirmation:** S&P drawdown · 252 sessions 25% + S&P return · 20 sessions 15% + S&P return · 60 sessions 15% + S&P distance from 50DMA 15% + S&P distance from 200DMA 20% + 50DMA relative to 200DMA 10%
- **Volatility stress:** VIX 35% + VIX change · 20 sessions 30% + S&P realized volatility · 20 sessions 35%
- **Discount-rate pressure:** 10Y real yield 30% + 10Y Treasury 20% + 10Y real yield change · 63 sessions 20% + 10Y term premium · THREEFYTP10 15% + Curve inversion pressure 15%
- **Inflation pressure:** CPI YoY 25% + Core CPI YoY 25% + CPI · 3m annualized 25% + Core CPI · 3m annualized 25%
- **Energy shock:** Persistent positive oil shock 100%
- **Liquidity and funding:** Wednesday liquidity proxy · 4 weeks 35% + SOFR minus IORB 35% + NFCI 30%
- **Labour deterioration:** Claims 4w average above 52w low 25% + Continuing claims · 13w slope 15% + Unemployment change · 3m 20% + Sahm rule 20% + Payroll growth · 3m 20%

## Layers

- **Macro and valuation:** rates, inflation_energy, valuation
- **Spreads and prices:** market, credit, breadth, earnings
- **Funding transmission:** funding, labour, lending, private_credit
- **Liquidity and deleveraging:** market, credit, funding, positioning

Liquidity and deleveraging requires market, credit and funding and takes their minimum. Coverage is available families divided by configured families. Missing valuation, breadth, earnings, private credit and positioning remain explicit.

## States

- Contained: below 55
- Building: 55 to below 60
- Elevated: 60 to 75
- Severe: above 75

Building is a provisional interpretation threshold, not a fitted downturn trigger. Downturn probabilities are withheld until historical publication timing and out-of-sample calibration are verified.

Permanent page: https://www.macrostress.com/methodology