Highlights of Recent Trends in Financial Markets

After some significant corrections in the second half of May and in early June, major equity markets have resumed their growth, in some cases regaining levels reached before the May-June contraction. Against a backdrop of healthy corporate balance sheets, robust earnings growth and low default rates, investor sentiment has remained positive, as reflected in these equity market developments and compressed credit spreads. However, there are signs of increasing nevousness, which include the May/June market turbulence and somewhat increased levels of historical and implied volatility. The increased nervousness may reflect in part downward revisions to economic forecasts.