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The 4.16 that wasn't strength: the IFIX/IBOV ratio as a fear gauge

Article

The extreme

A ratio between two indices can quadruple without either one rising. In March 2020 the IFIX/IBOV relationship did exactly that and, read literally, it looked like enthusiasm for real estate funds in the middle of a sell-off. It wasn't. When the IBOV collapses, anything that falls less rises in the ratio. The 4.16 was not measuring the strength of the IFIX; it was measuring how fast the floor of the equity index was disappearing. In numbers: IFIX/IBOV jumped from 1.02 to 4.16, while the dollar closed at R$4.8839 and the domestic mood, per Ânima, scraped the floor — from 4.1 to 2.6.

What happened next

The same pattern repeated across the neighboring ratios. Commodities/IBOV posted the month's largest jump — from -1.13 to 3.09, Δ +4.22 — through the same mechanics, compounded by the exchange rate repricing in reais everything quoted abroad. The Cyclical/Non-Cyclical relationship, by contrast, went the opposite way: it plunged from a z of 3.09 to -0.36, the premium for pro-growth sectors evaporating. The ratios that rise through a collapse of the denominator and the one that falls through genuine flight tell, together, the same story — aversion. The intermarket score confirmed it: 38.87, moderate risk-off.

What did not happen

The 4.16 was not a buy signal for real estate funds, nor a sign of returning appetite. Neither of the ratio's two assets was strong; the numerator was simply holding up better against the fall. Taking the high number as optimism would be inverting the signal — mistaking the thermometer for the patient. And the month's reading did not close with confidence: the engine admitted that deep fear added to an anomalous exchange rate resolves, historically, in ways too heterogeneous to pin down the regime.

The honest verdict

An intermarket ratio is a relative thermometer, not a measure of strength. In panic, it tends to rise precisely when everything falls, because it measures who falls less. The 4.16 of March 2020 did not say the IFIX was strong; it said the IBOV was in free fall.

Continue reading: March 2020 was the bottom · The dollar as a regime thermometer · What happened when fear priced in everything →

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Characters: Structure (intermarket) · Flow (risk appetite)