Issue 1 · Late October 2026
How much extra companies pay to borrow, how tight bank lending is, and how tense markets are. A high (hot) reading here means tense markets and harder borrowing; a low (cold) reading means calm markets with little fear of default. Each number compares the indicator only with its own past: the share of past months it is higher than; 50 is normal.
This issue
Combined, the 5 indicators in this category stand at 36 cool.
The others: Lending standards 49 (neutral), Bond volatility 38 (cool), OFR stress 36 (cool) and Financial stress 12 (cold).
Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.
Where it stands now
The category combined
Each month we take the median of the indicators’ positions, going back to 1989. Higher = more credit and financial stress.
coldcoolneutralwarmhotHatched = earlier periods that were also cool
US stocks after it began, cumulative1 yr2 yr3 yr
For each period, the changes 1, 2 and 3 years after it began are cumulative and measured from its first month; “What happened next” is measured from every cool month, so the two give different numbers. The events named beside each period are major events of that time, not necessarily related to the readings here.
Bars: median cumulative changeEarlier months with Credit and Financial Stress cool, excluding the current period (109)All months (443)
Median of the deepest drop below the starting month within the next 5 years: −4.7% for months with Credit and Financial Stress cool; −4.7% for all months.
“US stocks” means the S&P 500 price index compiled by Professor Shiller (monthly average, excluding dividends).
1989–2021: average yearly change in US stocks over the next 5 years
There is no clear relationship between hot or cold and what came next. The gaps between the bars are not consistent across months (rank correlation below 0.25); this is a record of the past, not a forecast.
What it is linked to
Financial stresstoWorld stocksCommon explanation: Ripple · opposite direction
In a panic, the prices of risky assets of all kinds tend to fall together
This issue: Financial stress at 12 (cold), World stocks at 72 (warm) — Financial stress below normal, World stocks above normal, in line with the common explanation (this is an inverse link).
Supported by the dataAgreement +0.48 · in step in 28 of 32 5-year periods
OFR stresstoWorld stocksCommon explanation: Ripple · opposite direction
When financial stress and volatility jump, funds that control risk by volatility lower their stock holdings at the same time, putting pressure on stock markets
This issue: OFR stress at 36 (cool), World stocks at 72 (warm) — OFR stress below normal, World stocks above normal, in line with the common explanation (this is an inverse link).
Supported by the dataAgreement +0.50 · in step in 12 of 12 5-year periods
Credit spreadtoUS stocksCommon explanation: Cause · opposite direction
A wider credit spread means costlier funding and higher default risk for companies, weighing on share prices
This issue: Credit spread at 9 (cold), US stocks at 94 (hot) — Credit spread below normal, US stocks above normal, in line with the common explanation (this is an inverse link).
Weak or inconsistentAgreement +0.47 · in step in 24 of 39 5-year periods
Financial stresstoGoldCommon explanation: Ripple · same direction
In a panic, safe-haven demand flows into gold
This issue: Financial stress at 12 (cold), Gold at 84 (hot) — Financial stress below normal, Gold above normal, not in line with the common explanation.
Weak or inconsistentAgreement +0.25 · in step in 17 of 32 5-year periods
Lending standardstoCredit spreadCommon explanation: Cause · same direction
When banks tighten lending, borrowing becomes harder and costlier for companies
This issue: Lending standards at 49 (neutral), Credit spread at 9 (cold) — at least one is in the neutral range (40–60), so we make no call this issue.
Not visible in our dataAgreement +0.09 · in step in 3 of 4 5-year periods
In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.
Credit spreadtoLeading indexCommon explanation: Cause · opposite direction
Tighter credit holds back investment and hiring
This issue: Credit spread at 9 (cold), Leading index at 42 (neutral) — at least one is in the neutral range (40–60), so we make no call this issue.
Not visible in our dataAgreement −0.02 · in step in 20 of 39 5-year periods
In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.
Financial stresstoUS dollarCommon explanation: Ripple · same direction
In a panic, money rushes into the dollar for safety
This issue: Financial stress at 12 (cold), US dollar at 45 (neutral) — at least one is in the neutral range (40–60), so we make no call this issue.
Not visible in our dataAgreement +0.10 · in step in 8 of 8 5-year periods
In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.
Bond volatilitytoWorld stocksCommon explanation: Ripple · opposite direction
When rates swing widely, discount rates for all assets become unstable, and risky assets come under pressure together
This issue: Bond volatility at 38 (cool), World stocks at 72 (warm) — Bond volatility below normal, World stocks above normal, in line with the common explanation (this is an inverse link).
Not visible in our dataAgreement −0.15 · in step in 35 of 45 5-year periods
In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.