The first creaking step has been taken on the road back to normalcy on Wall Street. Various measures of market risk are now heading in the right direction. Here's a quick look:
Treasuries: Rates on three-month T-bills are above 1.25 percent—a big move from last month, when flight to safety demand pushed yields on treasuries into negative territory (when treasury prices go up, yields go down). Now, that security-at-all-costs mentality is softening as investors move back into the rest of the market.
Libor: The overnight Libor interbank lending rate is below 4 percent for the first time since September 26.That means banks are tip-toeing back into the basic lending habits they gave up on at the height of the credit crisis. For a nice history of Libor, see this post from Money Morning.
The VIX: Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index, is dialing down. Less than a week ago, the VIX, which measures expected volatility, was above 80. Now it's back to 55. That's still high, but it's headed in a direction that has investors finally feeling like calm may be returning to stocks.
Schaeffers Research points out this week that when the VIX dips below its 10-day moving average after a bout of market fear, stocks tend to go up.
Historically, this has been a bullish omen. Once the VIX broke below this short-term trendline, following a streak of at least 11 sessions above it, the SPX has returned 2.59% on average over the next month, with the market being positive 76% of the time following such events.
These are exactly the trends scared investors want to see. They don't mean a rally is in the works or that markets won't bounce around in the coming months, but, for the first time since early September, signs of a thaw in credit mean stocks will get a chance to climb off the floor.