r/investing Apr 21, 12:46 PM
I tried to predict market stress from corporate fundamentals and the results were more interesting than i expected Most stress indicators people watch, VIX, credit spreads, yield curve inversions, are price-derived. They move when stress is already visible. I wanted to test whether looking directly at corporate balance sheets gives any signal before markets react.
I built a quarterly composite of leverage, operating margins, interest coverage, and free cash flow margin across roughly 2,000 US-listed companies.
The index that i built is called SHI (System Health Index)
The finding that stood out: the index from the previous quarter predicts the next quarter's VIX more strongly than the current quarter does. Worth noting though, fundamentals are published with a roughly 75 day lag, so the signal only becomes readable mid-way through the following quarter. In practice that means around 6 to 10 weeks of lead time, not a full quarter.
Two episodes were clear. In November 2021 the index printed its first elevated reading, followed by a second in February 2022. The S&P peaked on January 4, 2022 and dropped around 20% through October. During Liberation Day in April 2025, the index stayed negative the whole time despite the VIX spiking hard. It flagged the episode as an external shock rather than accumulated stress, which held up as the tariffs got walked back quickly.
I think the most useful thing it does is give you some context when markets are selling off hard.
Full paper here, feedback is appreciated: Systemic Health Index: Detecting Financial Market Stress Through Fundamental Data and Phase Transition Theory
submitted by /u/LilRobloz
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