What's the opposite of a financial crisis? We may be about to find out.
Amid the flurry of headlines already reinforcing how different the American landscape is five years on from the Great Recession – to wit, historic job growth, record-high household wealth and a bidding war over Jimmy Dean sausages – perhaps the most telling development didn't make headlines last week.
It's a bit wonky, sure, but it's also important.
It's one of those so-called 'leading' indicators that investors watch to gauge the health and future direction of markets: the cost of insuring major U.S. financial firms against default.
This plunged last week. The cost of protecting Goldman Sachs, for instance, has fallen by half since October. It dropped by around 20 percent so far in June alone. Intuitively, brighter prospects for the nation's leading financial firms augur well for the broader economy. More practically, it has also been a key leading gauge of stock-market performance "for the last two up-and-down cycles," according to market analyst Brian Reynolds of Rosenblatt Securities.
"This is turning out to be one of the eight to twelve day periods of my 30-year career that will be indelibly burned into my brain," he said on Friday, referring to the credit market moves on Goldman and its peers.
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Does this "melt-up" of apparent creditworthiness signal a looming "melt-up" in stocks even as the Dow Jones Industrial Average and the S&P 500 have already more than doubled from their 2009 lows and are currently trading at all-time highs?
Well, if past is prologue and behavior in these credit-market metrics is any guide, "This is the opposite of June 2008," said Mr. Reynolds, referring to the meltdown then of credit markets (and stocks, which followed suit).
Mr. Reynolds isn't the only one who has defied the bearishness that many traders and hedge-fund managers have repeatedly banked on this year. In April, Legg Mason's Bill Miller told CNBC that "you could shoot a dart at the stock market and anything you hit will be [trading] higher in six months," adding the usual conditions for a bad market – slowing growth, or rising interest rates – "simply don't exist."