Investors are jumping into risky assets fuelling a rally that has lifted the S\u0026amp\u003BP 500 eight per cent and the Nasdaq 14 per cent. Read on.
“Markets are pricing in the end of the inflation problem and … very heavily discounting the risk of a tail event,” said Nitin Saksena, head of U.S. equity derivatives research at Bank of America Corp., referring to unlikely but high-impact events that are difficult to model. “The risk of a severe recession, a policy mistake, or a second wave of inflation is becoming an afterthought.
“This tells you there’s some really strong reassessment of the future, not just the next month,” Saksena said. They have also ignored the Fed’s insistence that it will hold interest rates at an elevated level for a long time rather than quickly pivot to cuts. On several occasions last year, Fed chair Jay Powell helped to end similar market rallies by warning the central bank did not want financial conditions to ease too soon. Last week, however, he appeared relaxed about the recent gains, noting that “our focus is not on short-term moves” and declaring for the first time that “the disinflationary process has started.
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