How Soon Is Now?

“When you say it’s gonna happen “now”. Well, when exactly do you mean? See I’ve already waited too long. And all my hope is gone” 

–How Soon Is Now?, The Smiths, 1985

The rapidly spinning revolving door of financial market news has its latest headline to transfix investor emotions.  The latest rumblings heading into the new trading week surround cracks in credit quality and tightening liquidity conditions.  Names swirling at the center of these headlines include First Brands, Tricolor Holdings, Zions, Western Alliance, and Jefferies.  And recent events have Jamie Dimon talking about ‘cockroaches’.  All of this has some investors increasingly wondering whether a bigger problem for capital markets is gonna happen now and whether portfolio action may be required.  The best place to turn when seeking to answer this key risk management question is not the headlines.  Entertainers gotta entertain.  Instead, look to the data.   

“We do not expect people to be deeply moved by what is not unusual” 

–Middlemarch, George Eliot, 1871-1872 

Let’s start with a good old fashioned indicator of banking system stress.  Are banks showing the increasing propensity to not want to lend money to their business customers?  For this, let’s turn to the Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices and focus on the Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms.  Put simply, are banks infested with ‘cockroaches’ and thus increasingly shying away from lending out money to businesses?  The answer here is decidedly “no”.  Only 9.5% of domestic banks were tightening lending standards in 2025 Q3 according to the latest survey, which stands in sharp contrast to the north of 50% of banks that were pulling back on lending money during past episodes of stress like the 2022 inflation outbreak, the 2020 pandemic, the 2008 financial crisis, the 2000 bursting of the tech bubble or the early 1990s commercial banking squeeze.  If anything, banks are not deeply moved by what is not unusual today. 

But before going any further, an important block of salt associated with this data.  The SLOOS is released quarterly, and this most recent reading is from August 4.  A lot has happened since August 4.  And while I would normally follow by saying keep a close watch for the next data release on November 3 to see if this percentage is suddenly sharply rising, we’ve got the whole government shutdown thing that may keep us in the dark on the latest here for an undetermined time into the future.  Fortunately, we’re not simply reliant on this single data point, as we have a variety of places to look elsewhere for answers.  

For this, let’s next look at the St. Louis Fed Financial Stress Index.  This is a composite of 18 different stress indicators released weekly with a reading above zero signaling above average stress and a reading below zero signaling below average stress.  Where do we stand today with the latest reading for October 15?  A reading of -0.48, which is below zero and indicating below average stress.  We’re cool as a cucumber on this reading right now, but once again an eventual week has passed.  As a result, it’s worth seeing if we have any movement to the upside when the latest release comes out this Wednesday, October 22.  Nonetheless, we are starting from a very low base of below average stress on this reading. 

We’ll keep going to another indicator that gets baked fresh daily out of the capital markets oven, which is high yield spreads.  What’s happening here?  This is the additional yield that investors require on any given trading day for taking on the additional risk of owning high yield bonds versus U.S. Treasuries.  The higher the reading, the more stressed the financial system.  Where do we stand today?  In contrast to periods like the mid-2010s when a slew of exploration and production companies were going belly up, 2020 in the depth of COVID, 2022 when a scorching case of inflation infected capital markets, or even early 2025 when the tariff tantrum had markets locking up in the spring, we have seen a modest blip in recent trading days (squint to the bottom right and you might be able to see it!), but we remain at historically low levels in terms of the additional premium required by investors for owning riskier assets. 

Still all good, but let’s go one more for good measure and focus on the worst of the worst, which are your companies in the CCC or lower credit quality space.  This is often among the first areas of the market where signs of stress will emerge, as lenders will almost always pull back on their lowest quality borrowers first before the rest of the pack.  How do we stack up here?  OK, we’ve popped higher on these spreads by around 60 bps in recent days, this move is minimal to none in comparison to periods like 2020, 2022, early 2023 when a group of banks like Silicon Valley Bank were suddenly going belly up, or early 2025. 

Putting this all together, while it is always possible that we could be seeing the very beginning of what could ultimately unfold into the next major credit quality driven liquidity squeeze, we’ve got a looooong way to go before we even begin having this conversation.  In the meantime, these indicators look rock solid to support the idea that financial stress conditions are largely contained despite what the financial news headlines might be saying and doing to distract your eyeballs. 

Let me take this one step further.  Suppose this does continue to unfold into a spike in credit defaults and liquidity conditions lock up?  What then?  What we know, whether right or wrong, good or bad, is that the Federal Reserve and/or the U.S. Treasury will intervene with their latest liquidity bazooka to rejuvenate the financial system and make it’s pain go away.  If they can go so far to effectively guarantee high yield bonds during the COVID crisis, they can find an extra trillion dollars or two in the couch cushions at the Treasury and/or Fed to unlock financial conditions if something starts to go off the rails today.  And remember, it is no coincidence that the inflating of the AI bubble got started in May 2023 not long after the massive liquidity injections to rescue the U.S. banking system in March 2023 and April 2023, as markets love liquidity. 

But what about Mr. Dimon and his ‘cockroaches’?  Don’t get me wrong – I’ve been a big follower going all the way back to his Citigroup and Bank One days – respect.  But he does have the propensity for the occasional headline overextension.  For example, go back to August 2018 when the same JP Morgan CEO said “you better be prepared to deal with rates (10-year Treasury yields) 5 percent or higher”, and we’re still waiting to breach that level more than seven years later.  Once again, mad respect, but doesn’t mean that everything that comes off the cuff during a media interview is take-it-to-the-bank prophesy. 

Bottom line.  So what might the market actually need to worry about if not the onset of financial market stress?  It remains the threat of a renewed and sustained rise in inflation.  And the onset of any financial market stress will only serve to increase the probability of an eventual inflation accident that follows after simply too much liquidity persisting in financial markets for far too long.  Keep an eye on the financial stress data for certain, but focus more closely on the inflation data in the days and weeks ahead for the source of potentially real and sustained financial market pressure. 

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Investment advice offered through Great Valley Advisor Group (GVA), a Registered Investment Advisor. I am solely an investment advisor representative of Great Valley Advisor Group, and not affiliated with LPL Financial. Any opinions or views expressed by me are not those of LPL Financial. This is not intended to be used as tax or legal advice. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Please consult a tax or legal professional for specific information and advice.

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Eric Parnell, CFA Chief Market Strategist

Eric Parnell is the Chief Market Strategist for Great Valley Advisor Group. Eric applies his expertise in finance and economics to manage multi-asset portfolios, mitigate risk, deliver advice that promotes informed decision-making, and facilitate investors achieving their short-and long-term investment goals. He leads the GVA Asset Management platform overseeing the management of asset allocation models for GVA advisors and their end clients.

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