Blog: Are Markets Seeing Patterns in the Dark?

Fed Chairman, Jerome Powell, displayed cautious optimism last week as the FOMC left rates unchanged. In fact, the FOMC as a whole seemed in an upbeat mood with the famous "dot plot" indicating 75 basis points of easing next year.

The markets turned Powell's cautious optimism into full blown euphoria. The VIX fell to it's lowest level since January 20, 2020, weeks before the pandemic that changed everything. With that move, Equity Risk dropped into the bottom quartile of its history and MUSI shifted to Very Low Risk. At this point it's no longer reasonable to fight the market. It is likely that downside risk will be quite low for the next few months. Credit risk and interest rate risk have been low. Very low equity risk just confirms that the stock, credit and bond markets have all declared victory over inflation. What could go wrong? The first "soft landing" since 1994 seems a foregone conclusion in the mind of the market.