Why it's still too early to jump into the jittery market

It's still not a good time to be getting back into the stock markets. The global downturn is only just beginning, and equities continue to be very volatile.

The flood waters haven't "receded... but they have stopped rising", as Gerald Baker puts it in The Times. Stocks rebounded from last week's slump, which had seen the S&P 500 and FTSE 100 hit five-year lows early this week. They were due a bounce: extreme levels of risk aversion tend to presage a turning point, and last week the Vix volatility index, a gauge of fear on Wall Street, had hit record levels.

Meanwhile, interbank lending rates have eased: the cost of borrowing in euros for three months has fallen to the lowest level since Lehman Brothers collapsed, while the overnight dollar rate has declined below the main US interest rate for the first time since early October. Credit default swap spreads on banks, a gauge of their risk of bankruptcy, have tumbled. Worldwide bank recapitalisations and bank debt guarantees have averted a complete collapse of the banking system.

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