Major Risk Indicators Showing Historic Level of Investor Outright Panic Over Economy and Stock Market
Major Risk Indicators Showing Historic Level of Investor Outright Panic Over Economy and Stock Market. SentimenTrader has combined a number of risk indicators that measure perceived economic, stock market, monetary liquidity, and perceived credit risk of the global financial banking system. As the chart below shows the coronavirus and its perceived impact has sent the level of panic to a record high going all the way back to at least the recession of 1960. The indicator incorporates the TED Spread, Junk Bond Yield Spreads, a ratio of Volatility to 3-Month Treasury Bill Yields and High-Yield CDS Spreads. All of these spike higher when uncertainty about the economy, corporate outlooks and stock prices are high, and reach extreme high levels only during times of outright panic. For example, the TED spread, which shows perceived risk to the global banking system, is the difference between the three-month T-bill rate and the three-month London Inter Bank Offered Rate (LIBOR). The high yield CDS spread indicates the price investors have to pay to insure against companies defaulting. As perceived default risk rises, so does the spread (cost) of the CDS.