Financial Market Stress Declines for First Time in Eight Weeks

The St. Louis Fed Financial Stress Index (STLFSI) fell markedly in the latest reporting week, nearly offsetting the previous week’s sharp increase. For the week ending Oct. 24, 2014, the STLFSI measured -1.017, down from the previous week’s revised value of -0.832; the decline was the first in eight weeks. The STLFSI has registered below-average levels of financial stress for 151 consecutive weeks.

Over the past week, seven of the 18 indicators contributed negatively to the change in the STLFSI, three fewer than the previous week. The STLFSI’s bond and equity market volatility components—the Chicago Board Options Exchange Market Volatility Index (VIX) and the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo)—made the two largest negative contributions to the weekly change in the index; in the prior three weeks, these two components made the two largest positive contributions. Seven of the 18 indicators contributed positively to the change in the STLFSI, the same as the previous week. The yield on the Baa-rated corporate bond (BAA) made the largest positive contribution.

Over the past year, eight of the 18 indicators contributed positively to the change in the STLFSI, one more than the previous week. The largest positive contribution was made by the expected inflation rate over the next 10 years (BIR_10yr). Nine of the 18 indicators made a negative contribution to the STLFSI over the past year, unchanged from the previous week. The largest negative contribution was made by the BAA.

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