Which Macro Indicators Actually Predict Market Drawdowns?

Systematic evidence on which indicators work, and when.

Investors obsess over a range of indicators to gauge market risk. VIX spikes, so risk is elevated. The yield curve inverts, so a recession is coming. M2 contracts, so equities are vulnerable.

Few ask a simpler question: Which of these actually predicts drawdowns, and over what horizons?

The answer is less obvious than it seems.

This week I look at research that tackles exactly this question: Which macro-financial variables predict drawdowns, and how that depends on the forecast horizon. I test part of the framework using my own data.