Economic Uncertainty & Equities Markets

Economic policy uncertainty continues to fall-- along with the oft-quoted VIX-- as this week's much anticipated ECB meeting nears.  Will Europe's monetary authority act decisively in an effort to combat increasingly common hints of disinflation/deflation?  Does that involve buying asset-backed securities?  Will today's weak inflation data estimate out of Germany trigger more meaningful action?




Of course, we have to wait and see what Draghi decides just like everyone else.  However, based on evidence from the last couple of decades, we would note that an increase in policy uncertainty is often associated with declines in equities markets:



The relationship holds for the U.S. as well-- we see that economic policy uncertainty (especially the daily series, in grey) spikes as the S&P 500 declines: