The spring spirits have sprung

Summary

• The Animal Spirits Index (ASI) rose for the fifth consecutive month in March, marking the highest level seen since April 2019.

• Every component contributed positively to the index in March, with the exception of the Economic Policy Uncertainty Index.

• The ASI's positive streak aligns with still-strong economic data as of late, but there remains scope in the coming months to return to the red amid stubborn inflation data and economic policy uncertainty.

The spirits have blossomed

The Animal Spirits Index (ASI) started 2024 at a strong pace, increasing each month this year and rising further to 0.96 in March. Previous reports detail the index methodology, but on a basic level, an index value above zero indicates optimism and a value below zero suggests pessimism. March marks the fifth consecutive month that the ASI has remained positive and is the highest index value seen since April 2019.

The ASI consists of five indicators: the S&P 500 Index, the Conference Board’s Consumer Confidence Index, the yield curve (the spread between the 10-year and three-month Treasury yields), the VIX Index and the Economic Policy Uncertainty Index. The policy uncertainty and VIX indices inversely affect the ASI. In other words, a rise in uncertainty or volatility decreases the index, while a fall increases the index, all else equal.

Every component contributed positively to the index in March, with the exception of the Economic Policy Uncertainty Index. The financial sector led the ASI's strong gain as the S&P 500 Index reached a record high. The S&P 500 Index climbed roughly 160 points over the month and closed out a fifth consecutive month of gains. Stock market volatility remained roughly the same in March, with the VIX Index falling slightly to 13.0 from 13.4 previously. In the bond market, the yield spread on the 10-year and 3-month Treasuries remained inverted at -100 bps with little change from the previous month.

Download the Full Report!