The stock market, and by extension the Dow Jones today, appears to be largely unconcerned about rising consumer credit levels. Despite discussions around potential risks associated with increased consumer spending on credit, indicators from the financial sector suggest a stable credit environment. Major credit card companies continue to perform well in the stock market, implying that investors are not anticipating a widespread credit crisis. This positive sentiment is further reinforced by the actions of banks.
Financial institutions have not significantly increased their loan loss reserves, a precautionary measure taken to cover potential loan defaults. This suggests that banks are confident in the ability of consumers to manage their debt and are not expecting a surge in defaults on mortgages or credit cards. Historically, banks have been quick to adjust loan loss reserves in response to perceived economic risks. The current restrained approach indicates a belief in the overall health of the consumer credit market.
Beyond consumer credit, the corporate bond market also reflects a positive outlook. Yield spreads on corporate bonds, which represent the difference in yield between corporate bonds and risk-free government bonds, remain relatively low. This indicates that investors are not demanding significant premiums for the risk of corporate defaults, suggesting confidence in the financial stability of corporations. The resilience of the corporate bond market further supports the notion that the broader financial market is not overly concerned about an imminent credit-driven downturn. The current market behavior suggests a disconnect between anxieties surrounding consumer credit and the actual performance of financial markets.