Did You Know the Fed Has a “Financial Stress Index”?

Good day, everyone, and welcome to November’s issue of GMP.

It’s a pivotal moment for our financial markets, and we’ve got some incredible charts to show you, like this one.

This chart shows the Financial Stress Index as measured by the Federal Reserve Bank of St. Louis. The index is made up of variables, including interest rates, bond yields, corporate bond yield spreads, implied volatility, as well as the financial sector of the stock market.

In times of shocks, this index spikes higher. Back in 1998, the index had moved into positive territory, indicating increased stress before the panic created by the demise of Long Term Capital Management. The stress index was also indicating increased nervousness ahead of the technology media and telecom bust at the start of this century.

The stress index was moving higher in positive territory from October 2007, giving clear warning of the panic in 2008, and was even moving up just prior to the COVID panic in 2020. And having reached record complacency in 2022, stress was rising ahead of the U.S. banking crisis of March this year.

So, what is happening now with stress levels? It’s a very interesting answer.

So, check out the article to find out. Enjoy the issue, and stay tuned to EWI to help you navigate these historic times.

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