"When markets stop reacting to the obvious headline risk, they tend to be quietly pricing in something else - something less visible, but potentially more damaging. That's where investors should start focusing their attention."
"If inflation re-accelerates - even modestly - the Fed could delay rate cuts or, in a more aggressive scenario, tighten financial conditions again. Markets are currently pricing in roughly 75 to 100 basis points of cuts over the next 12 months, but that expectation can unwind quickly."
"Credit spreads - the difference between corporate bond yields and Treasuries - have widened from 1.15% in late 2024 to roughly 1.65% in April, according to ICE BofA indices. That may sound small, but in credit markets, it indicates increased risk."
Despite rising political tensions, equity markets remain resilient, suggesting investors are overlooking significant risks. The Federal Reserve's potential policy reversal poses a major threat, as inflation may lead to delayed rate cuts. Additionally, credit markets are tightening, with widening credit spreads indicating increased risk. These factors suggest that while tariffs are not currently a concern, other underlying issues could lead to a significant market correction.
Read at 24/7 Wall St.
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