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Stocks Lots Of Room To Fall

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by Felix Salmon
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Mar 03 2008 12:00am EDT

Stocks: Lots of Room to Fall

Tony Jackson has a good overview of the divergence between the stock market and the bond market. In Europe, the iTraxx Europe index of investment-grade credits has hit an all-time high of 138bp, which seems like a screaming buy over the long term.

In the short term, however, continued stock-market weakness seems more likely than any credit-market strength. With credit spreads continuing to gap out, the gap between stock-market and bond-market valuations is bigger than ever. Stocks could fall a very long way indeed before they start ratifying the kind of pessimism currently built in to credit prices.

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