Global Financial Stress Is Starting To Pick Up Steam, And That's Bad News For Stocks

Global financial stress, a coincident indicator for global stock prices, is flaring up again in the wake of the crisis in Cyprus.

The blue line on the chart below shows BofA Merrill Lynch's Global Financial Stress Index turned upside down to illustrate how it correlates with global equities, proxied by the MSCI All Country World Index (the red line).

While global equities have started to roll over a bit, global financial stress has spiked upward pretty forcefully in the past few weeks.

The chart below offers a look at the sub-components underlying BAML's index as of Friday, March 22.

As one might expect, most of the biggest changes in financial stress recently have been driven by Europe-related factors.

"The Cyprus bailout story caused most measures to increase last week. In fact, only 5 measures registered a decrease in stress. Unsurprisingly, 4 of these were non-European," write BAML analysts in a note to clients.

BofA Merrill Lynch Global ResearchClick to enlarge

(h/t @Dutch_Book)