epu shock defensives long
What it checks
When the Economic Policy Uncertainty index spikes more than 1 standard deviation above its yearly average, investors rotate into defensive stocks (utilities, staples, gold). Go long the defensive basket for 1-3 months.
Mechanism
When the Baker-Bloom-Davis EPU index spikes (z > 1.0 vs trailing year), uncertainty-averse investors rotate from cyclical equities toward defensives. The defensive basket (utilities, consumer staples, gold proxies) outperforms by ~2-5% over 30-60 days post-shock.
Signal rule
epu_daily 252d z >= 1.0 / 1.5 (T+1) -> LONG defensive ticker (XLU, XLP, GLD, NEE, DUK, KO, PG, JNJ, etc.) for 30/60 trading days.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
epu_indexWorker data table — see services/worker schema.
Expected edge
- Paper alpha
- +2-5% over 30-60d
- Paper window
- T+1 to T+60d
+2-5% over 30-60d on defensive basket post-EPU spike (BBD 2016).
Example tickers where this is likely to fire
Illustrative only — the signal fires based on the live data, not a fixed list.
Related families
epu sector rotationGeopoliticalEPU spike rotates cross-section: cyclicals underperform defensives 50-100bps/mo.
gpr geopolitical riskGeopoliticalText-based newspaper-archive index of geopolitical risk; spikes precede defense/oil/gold outperformance.
macro regimeMacroBeyond regime_overlay (#10) which uses VIX + SPY trend, this family keys off the macro regime detected from FRED data: term-spread inversion (10Y−2Y < 0), credit-spread widening or compression (BAA−10Y z), and Fed funds cycle direction. Single-name version: gate the simple long-trend signal (SMA50 > SMA200) on the FRED macro regime — full long only in risk-on, half-size in neutral, flat in risk-off, short in inversion.
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