St. Louis Fed Financial Stress Index Bottoming

Thanks to subscriber JF for forwarding this tweet from the St. Louis Fed.  Per JF, this is in line with TED, LIBOR, credit spreads, etc.  Here is the graph from the tweet.  The most that can be said is that it is bottom-making, not impulsively rising.  Things are still calm.

From St. Louis Fed:  “The average value of the index, which begins in late 1993, is designed to be zero. Thus, zero is viewed as representing normal financial market conditions. Values below zero suggest below-average financial market stress, while values above zero suggest above-average financial market stress.”

financial stress index, st. louis fed

Let’s dial it out further.  The index is echoing the calm period from 2003 to 2007, when Alan Greenspan’s credit bubble served to temporarily sweep systemic pressures under the rug in service to economic growth.

With the complexity, duration, scope and global coordination of the current mop up operation, we might call a warning level higher, at zero (where 2010 and 2011 mini-events got capped).  But if you believe data have a rhythm and go in cycles, then the breakout below is a caution signal to keep an eye on coming events.

financial stress index, st. louis fed

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