Commercial and Industrial Credit as a Stock Market Driver

Does commercial and industrial (C&I) credit fuel business growth and thereby drive the stock market? To investigate, we relate changes in credit standards from the Federal Reserve Board’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices to future U.S. stock market returns. Presumably, loosening (tightening) of credit standards is good (bad) for stocks. The Federal Reserve publishes survey results a few days after the end of the first month of each quarter (January, April, July and October). Using as-released “Net Percentage of Domestic Respondents Tightening Standards for C&I Loans” for large and medium businesses from the Senior Loan Officer Opinion Survey on Bank Lending Practices Chart Data for the second quarter of 1990 through the fourth quarter of 2023 (136 surveys), and contemporaneous S&P 500 Index quarterly returns (aligned to survey months), we find that: (more…)