Credit market and equity market

We compare trends in credit spreads and share prices in the United States and the euro zone. There are several differences between credit spreads and stock market indices: Stock market indices are linked to the level of earnings, credit spreads to the probability that weak earnings will lead to bankruptcy; The time horizon of stock market indices is longer than that of credit spreads; There is a floor to credit spreads, there is no cap to stock prices. An observation of differences shows - which is consistent with a principle analysis - that in periods of sharp rises in financial markets, share prices are higher than what is consistent with credit spreads. This is likely to happen again now.