Sunday, February 12, 2012

St. Louis Fed Financial Stress Index looking better ....


As seen in the chart to the left, the St. Louis Federal Reserve Financial Stress Index for February continues to stay at levels that suggest not much financial stress is present in the markets.  This index measure of the amount of financial stress affecting the markets  based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility. 


According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.   


The chart shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007.  While things can clearly change, this does provide some comfort that the investing back drop, while appearing to have some similar observed characteristics as 2007, really doesn't as measured by real life variables.

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