Easing financial conditions
Financial conditions around the world are easing as economies start to rebound and financial markets calm down. This can be seen through the Bloomberg U.S. Financial Conditions Index, which tracks the level of financial stress in the U.S. equity, bond, and money markets to assess the availability and cost of credit.
The Bloomberg U.S. Financial Conditions Index has rebounded above 0.8 for the first time in 45 days:
Historically, this often happened after a major correction or bear market and led to more gains for U.S. equities over the next year.
- November 1998: this occurred after a 20% market plunge
- April 2003: this occurred after the 2000-2002 bear market
- November 2998: this occurred after the 2007-2009 bear market
- August 2010: this occurred after a major correction
- February 2012: this occurred after a 20% market plumge
Across the Atlantic, the Bloomberg Eurozone Financial Conditions Index is also recovering.
But unlike in the U.S., this wasn't a consistently bullish factor for European equities:
From a different perspective, the Conference Board Leading Economic Index dropped -11.5% over the past year. The LEI incorporates labor, manufacturing, consumer data, and other economic/fundamental data.
This was a good sign for U.S. equities after the 1973-1974 bear market and March 1980 stock market crash. However, it came way too early during the 2007-2009 bear market and did not effectively mark the bottom.