Financial Stress Index Signal

Signal Summary:

• The Financial Stress Index signal (1) currently indicates a Neutral regime as of 2026-01-16.
• Financial stress is below average (STLFSI4 at -0.6510) but not loose enough to be considered Bullish (z-score at -0.142663).
• Conviction Band: Medium | Interpretation Confidence: High Confidence | Internal Conflict Flag: No.

Key Dynamics:

• The signal has recently transitioned from a period of Bearish (risk-off) conditions in late 2025 to its current Neutral state.
• The underlying STLFSI4 value remains negative, suggesting below-average stress, while its robust z-score has stabilised near zero after peaking in November 2025 (1).
• Conditional Invalidation: The signal would reverse to "Bearish" if the STLFSI4 level rises above 0 or its robust z-score exceeds +0.5.

Scenario Balance:

• Base Case dominant: continued Neutral conditions, as the z-score fluctuates between -0.5 and +0.5 and the STLFSI4 remains negative.
• Upside secondary: easing conditions leading to a Bullish signal if the z-score drops below -0.5 while STLFSI4 stays negative.
• Downside residual: re-escalation of stress leading to a Bearish signal if the STLFSI4 turns positive or the z-score exceeds +0.5.

Time Horizon & Aggregation:

• Time Horizon: Tactical (weeks), given its role as a weekly risk-on/risk-off classifier (1).
• Aggregation Weight Hint: Medium, as it offers a clear sentiment gauge but should be complemented by other macro signals for broader conclusions.

Macro Relevance:

• Macro dimension informed: Sentiment, Credit, and broad Risk Conditions.
• Cycle position: It can indicate shifts within the mid to late cycle as financial conditions tighten or ease.
• Typical interaction with other macro signals: Often combined with credit spreads (1) and volatility (VIX) (1) to form a comprehensive view of financial stability and risk appetite.

Data & References:

• STLFSI4 (St. Louis Fed Financial Stress Index), latest observation 2026-01-16.
• The `FinancialStress_Signal` and `Stress_z` are most influential for the current state.
• Additional public datasets that would improve depth or reliability: VIX Market Volatility (1) and Credit Spreads (1).