As we get closer to the last #fomc meeting of the year, market consensus expects no more #ratehikes, and perhaps a signal that “higher for longer” is not going to be sustainable. But if in fact they stay higher for longer, in the chart below you can see the impact of high official rates into the equity market, and more precisely on volatility. Every time we have had rate hikes, the VIX index has spiked notoriously, to levels between 40 and 80, which are typically synonymous with panic. But this time, it hasn’t happened, at least not yet. Current level of the VIX is 13, which can be read as worry-free levels, ignoring the past relationship with rates and discounting a smooth path for the S&P500. Is it the calm before the storm?
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Chart source: Tavi Costa, Crescat Capital
