It's not the end of the world as we know it - and the market feels fine. The three weeks since the Bear Stearns (NYSE: BSC - News) rescue have seen a global rally in stocks and stronger credit markets.

There is good reason for this. Armageddon is off the table.

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US authorities at last seem to have found a way to restore confidence. The decision by the Federal Reserve to lend directly to brokers has had a significant effect, assuaging fears among investment banks.

When Bear was in trouble, a series of bank collapses looked possible. That now seems highly improbable once more. The rally sensibly reflects this change.

The S&P 500 Financials and the FTSE Eurofirst 300 banking index are up 20 and 21 per cent, respectively, since the lowest moment of the Bear crisis.

Investment grade credit is also improving. High-grade credit default swaps have made back almost all of their falls for the year in Europe and show strong improvement in the US.

It is, of course, good to know that Armageddon is not coming.

However, that does not mean we can call an end to the credit crisis, or even - yet - proclaim that a turning point has been reached.

First, money markets are still stricken. In Europe and the US, the Libor rates at which banks lend to each other remain far above official overnight rates.

The gap is nearing its widest since the crisis began. Banks still do not trust each other.

Also, the full effects of the crisis on the real economy are still unknown. JPMorgan shows that banks have in recent weeks increased credit, even while tightening standards. In other words, they are lending more to existing clients to deal with the absence of other credit sources.

Can this continue, given the sector's increasing losses?

If not, then a lot of popular assumptions currently about a swift economic recovery come into question. Even if the world is not ending, we should not yet be feeling fine.

john.authers@ft.com

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