Spirits stirring: ASI shows signs of life

Summary

• The Animal Spirits Index (ASI) returned to positive territory in June (0.09) after three consecutive months of negative readings.

• Every component contributed positively to the index in June, with the exception of the Consumer Confidence Index.

• Economic policy uncertainty weighed heavily on the ASI in Q2, and we expect it to further shake consumer sentiment in coming months.

A quiet turn upward

After three consecutive months of negative readings, the Animal Spirits Index (ASI) returned to the positive, rising to 0.09 in June. Previous reports detail the index methodology, but on a basic level, an index value above zero indicates optimism, and a value below zero suggests pessimism. Though June saw some relief, the ASI remained depressed for much of Q2, hitting its lowest value since 2021. The second quarter saw heightened economic uncertainty, which escalated in April over the announcement of "reciprocal" tariffs.

The ASI consists of five indicators: the S&P 500 Index, the Conference Board’s Consumer Confidence Index, the yield curve (the spread between the 10-year and three-month Treasury yields), the VIX Index and the Economic Policy Uncertainty Index. The policy uncertainty and VIX indices inversely affect the ASI. That is, a rise in uncertainty or volatility decreases the index, while a fall increases the index, all else equal.

Every component—apart from the Consumer Confidence Index—made an additive contribution to the ASI index in June. In the bond market, the yield spread on the 10-year and 3-month Treasuries remained in positive territory, narrowing slightly from 18 bps to 15 bps in June. The S&P 500 Index also experienced positive momentum, rising roughly 294 bps in June to a new peak. Meanwhile, stock market volatility has eased, with the VIX Index falling to 16.7 in June from 24.7 in April.

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