Measures Of Financial Stress

Includes: VXX, XLF
by: Tim Duy

Since we are all running downhill and gaining speed with expectations that the Federal Reserve will do "something" on a grand scale next week, I thought I would continue on with my earlier theme of looking at the other side of the story. With that in mind, some measures of financial stress:

This snapshot suggests that financial stress, at least in the US, is no worse, and on average better, than during last year's Eurocrisis flareup. Nor, as I suggested in my last post, do I think we have enough data to make significant downward revisions to the economic forecast. Yet, increasingly, market participants are thinking the Fed will move forward with a sizable new QE program which means, compared to last year's Operation Twist, expecting the Fed to do more on the basis of less.

Not that they won't; the Eurocrisis is putting plenty of downside risk in the forecast. But it is something to think about.