“In the beginner’s mind there are many possibilities, in the expert’s mind there are few” Suzuki

Rising 10-year treasury yields, higher oil prices, the OECD coming out with a cautionary message for economic growth in 2024, the threat of another US government shutdown and the upcoming earnings season at present are not materially denting the S&P 500. After the success of ARMS’s relisting, the IPO market seems alive and well as Instacart, a grocery delivery service, listed on Tuesday, rose almost 40% at the open. Indeed equity markets have actually seen some inflows in the past week. All this is ahead of the possibility of another hawkish Fed message later today.  

The Vix fear index at one point this week hit its lowest level since 2019. Having said that there are signs the index is creeping higher suggesting some investors are becoming a tad more cautious. There are other cautionary signs out there as the ratio of put buying, insurance against a fall, against call buying, and betting on further rises, is on the increase. The number of days between a 2% move in the S&P 500 continues to rise.

Could the Fed later today be a catalyst for a bout of volatility? At present the US economy remains relatively resilient, with the experts becoming more convinced of a “soft landing”. One thing history books tell you is experts are usually wrong. Laymen are expected to listen to them, and take their advice, as they are the “experts”, but those experts so often apparently fail to see the wood for the trees and appear to get stubborn and complacent and often defensive when their advice is challenged.

The consensus view, another thing always to be wary of, is no change to interest rates today, but the likelihood of a continuation of the hawkish tone. Not ruling out the possibility of another rise before the year’s end.

At some point interest rate rises will bite the economy will slow and the Fed will once again look to reverse policy, the question is not if but when?

Mark Carney, an ex-governor of the Bank of England, in front of an audience in Montreal, decided to suggest that the UK economy had something in common with that of Argentina. The OECD weighed in suggesting that only Argentina’s economy will have lower growth next year than the UK’s. Thankfully our economy and Argentina’s economy have very little in common, a country that has a history of defaulting on its obligations to the rest of the world. For a former public servant to make such an analogy in public feels pretty appalling. Another expert whom history tends to show is often more wrong than he is right.