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This has the makings of a bottom





Equities are up over 3% today, and the Vix Index has dropped by almost half since its recent high. Given how depressed the market was until recently, I think this has all the makings of a bottom, at least for now. The financial fundamentals I watch have all improved substantially over the past month or so, even as the equity market worked itself into a lather over the prospects of a big economic slowdown. Swap spreads both here and in Europe are down meaningfully from their recent highs, and implied volatility is down significantly. Commodity prices had a meaningful correction, but they have not collapsed by any stretch. Oil is almost back up to its average over the past year. The dollar is off 5% from its recent high, another sign that the climate of fear that drove investors to dollars has subsided. Ditto for gold, which is down almost 5%.

It looks to me like the equity market just got carried away, letting its attention drift from the fundamentals to worry instead about all the dire warnings being advanced by pundits everywhere.

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