Financial market stress rose modestly for the second consecutive week according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Jan. 31, 2014, the STLFSI measured −0.869. This was a modest increase from the previous week (−0.970) and from two weeks earlier (−1.027).
Over the past week, 11 of the 18 indicators contributed positively to the change in the STLFSI, which is two more than the previous week. Perhaps not surprisingly, given the recent turbulence in equity markets, the Chicago Board Options Exchange Market Volatility Index (VIX) made the largest positive contribution for the second consecutive week. The expected inflation rate over the next 10 years (BIR_10yr) made the second-largest positive contribution. In the STLFSI, the BIR_10yr has a negative weight, so lower inflation expectations contribute positively to financial stress.
Financial market stress remained above its year-earlier level for the second consecutive week, but below zero for the 107th consecutive week. Over the past 52 weeks, 11 of the 18 indicators contributed negatively to the change in the STLFSI. For the fifth consecutive week, the largest negative contribution over the past year was made by the spread between Baa-rated corporate bonds and 10-year Treasury securities (Corp_CRS). Once again, the BIR_10yr made the largest positive contribution over the past year.
For an explanation of the 18 component variables in the STLFSI, refer to the STLFSI Key.