The folks at the St. Louis Fed – about whom I can’t say enough good things — produce a proprietary Financial Stress Index, a full explanation of which can be found here [PDF]. A full deconstruction of the Index is, frankly, a bit above my pay grade. What’s not, though, is exploring the correlation of the Index to the S&P500 and discovering that while it’s generally well-correlated, that correlation has increased dramatically since the recession began at the end of 2007, as can easily be seen in the chart above. (I’ve inverted the S&P500 to better display the correlation.) The question I need to explore, of course, ... (full story)