There has been a lot of concern over the behavior of the Baltic Dry Index (BDI).  This is an indicator we have discussed several times over the past few years, usually with very mixed results in terms of its predictability.

It’s getting attention now because it has cratered 40% in a few weeks, and is trading at a two-year low. 

Many consider the BDI to be a better predictor of China’s Shanghai Composite index than the S&P 500, so the table below shows how the Composite performed in the months after the BDI collapsed to a two-year low.

As we can see from the table, results weren’t too bad, in fact they were a bit better than random.  To see the same results for the S&P 500, click here for the table.

If we just look at the largest monthly declines in the BDI, then the figures change.  In those cases, stock market performance in the S&P 500 and Shanghai Composite are a bit worse than random.

If we combine the two and look for large monthly drops to a two-year low, then stock market performance was mixed-to-poor during the next 1-3 months, but then good afterward.  We wouldn’t read a whole lot into this indicator’s recent decline.