Financial Stress Rises to Highest Level in Four Years But Is Still Below Normal

Please note: Data values previously published are subject to revision. For more information, refer to the vintage series in ALFRED®.

Financial market stress rose to a four-year high in the latest reporting week, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Jan. 8, the index measured -0.492, up sharply from the previous week’s revised value of -0.609.  This was the seventh increase in 10 weeks. The latest reading is also the highest since the week ending Jan. 6, 2012.  Still, stress is below average (0=normal conditions).   

Over the past week, 11 of the 18 indicators contributed positively to the weekly change in the index, three more than the previous week. The largest positive contributions were made by the index’s two market volatility measures: the Chicago Board Options Exchange Market Volatility Index (VIX) and the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo). Five of the 18 indicators contributed negatively to the weekly change in the index, four fewer than in the prior week. The largest negative contribution was made by the yield on Baa-rated corporate bonds (BAA), followed by the 10-year U.S. Treasury security yield (Treas10y).

Over the past year, 15 of the 18 indicators made a positive contribution to the index and two indicators made a negative contribution. These numbers were unchanged from the previous week. For the third consecutive week, the largest positive contribution over the past year was made by the Merrill Lynch High-Yield Corporate Master II Index (Mlynch_HighYld_MasterII). The second-largest contribution was made by the BAA. The largest negative contribution over the past year was made by Mlynch_BMVI_1mo. The other negative contribution was made by the J.P. Morgan Emerging Markets Bond Index Plus (EMBI).

For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.