Financial Market Stress Declines for First Time in Four Weeks

A sharp decline in equity market volatility helped to lower financial market stress for the first time in four weeks, according to the St. Louis Fed Financial Stress Index (STLFSI). For the week ending Jan. 23, 2015, the STLFSI measured -0.856, down modestly from the previous week’s value of -0.812. For the first four weeks of 2015, the STLFSI has averaged -0.874, appreciably higher than the average seen over the first four weeks of 2014 (-1.266).

Over the past week, eight of the 18 indicators contributed negatively to the weekly change in the STLFSI, which was one fewer than the previous week. The largest negative contributions were made by the Chicago Board Options Exchange Market Volatility Index (VIX) and the expected inflation rate over the next 10 years (BIR_10yr). Over the past week, five of the 18 indicators contributed positively to the STLFSI, three fewer than the previous week. The largest positive contribution was made by the Merrill Lynch Bond Market Volatility Index (Mlynch_BMVI_1mo).

Over the past year, 10 of the 18 indicators made a positive contribution to the index and eight indicators made a negative contribution. These numbers were unchanged from the previous week. Also like the previous week, the largest positive contribution over the past year was made by the BIR_10yr and the largest negative contribution was made by the yield on corporate Baa-rated bonds (BAA).

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