Economic Policy Uncertainty Plummets as Daily Index Hits 151.7 Amid Falling Trend

Policy Uncertainty Index

As of May 14, 2026, the Daily EPU Index has dropped significantly to a level of 151.7. This represents a sharp daily decline of 71.4 points and a substantial monthly decrease of 277.9 points. The 7-day moving average currently sits at 305.8, while the 30-day moving average remains higher at 346.3, reflecting the recent rapid cooling of uncertainty. News-based uncertainty is currently measured at 280.4, indicating that while the daily spot rate is low, media coverage still reflects lingering concerns. The overall trend is clearly falling, suggesting that the peak of recent policy-driven anxiety may have passed. Key drivers for this decline likely include clearer communication from policymakers or the resolution of specific legislative hurdles that previously clouded the economic outlook.

Uncertainty Regime

Despite the recent sharp declines, the current uncertainty level is still classified as being in an Above Average regime. This classification suggests that while the situation is improving, the environment remains more volatile than long-term historical norms. The falling trend is a positive signal, indicating a transition away from the extreme spikes seen in previous months. When comparing this to historical data, an above-average regime often persists for several months before returning to a baseline state. The monthly EPU reading of 212.3 further confirms this elevated status, even though it has dropped by 47.8 points month-over-month. Investors should remain cautious as the transition from high to average uncertainty can often be non-linear and subject to sudden reversals.

Policy Uncertainty Trend (Daily)

Historical Parallels

Analysis of the current data has identified 11 historical periods that share similar characteristics with the current EPU profile. In these previous instances, the average EPU level three months later was 264.3, which is higher than the current daily spot rate. Looking six months out, the historical average EPU stood at 257.9, suggesting that uncertainty often mean-reverts toward a higher baseline after sharp drops. These parallels indicate that the current low daily reading of 151.7 might be a temporary trough rather than a permanent new low. Historically, such periods have been followed by a stabilization of uncertainty at levels that are still relatively elevated compared to pre-crisis eras. Understanding these patterns helps investors prepare for the possibility that volatility could return later in the year.

Market Snapshot

The broader market context shows the S&P 500 trading at $7501, marking a robust 6.8% gain over the past month. This strong equity performance coincides with the falling trend in the EPU Index, suggesting that markets are pricing in a more stable policy environment. While the EPU Index is not a direct market-moving release, its downward trajectory provides a supportive backdrop for risk assets. Investors appear to be looking past previous policy concerns and focusing on corporate earnings and economic growth. The divergence between the high 30-day moving average of 346.3 and the current daily level of 151.7 highlights a rapid shift in sentiment. This environment typically favors equities as the uncertainty discount begins to fade from stock valuations.

Defensive Sector Performance

Defensive & Policy-Sensitive Stocks

In an environment where uncertainty is falling but remains above average, the choice between defensive and cyclical stocks becomes critical. Cyclical sectors, such as industrials and consumer discretionaries, often benefit from the clarity provided by a falling EPU trend. As policy fog lifts, companies in these sectors can better plan capital expenditures and expansion, potentially leading to outperformance. Conversely, defensive stocks like utilities and consumer staples may see less relative demand as investors move away from safe haven assets. However, because the regime is still Above Average, a complete abandonment of defensive positions may be premature. The current S&P 500 level of $7501 suggests that much of the optimism regarding falling uncertainty is already being baked into prices.