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The biggest risk to the market depends on who you ask: Morning Brief

This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, March 30, 2022

There have been a lot of news headlines weighing on markets over the last month. But the two biggest ones are:

  • Russian invasion of Ukraine

  • Uncertain path of interest rate hikes from the Federal Reserve

As we prepare to flip the calendar into April, markets remain fixated on both stories. But which one remains the bigger risk? That depends on who you ask.

The common talking point at the beginning of the war in Ukraine was that the U.S. economy was relatively insulated from geopolitical conflict in Eastern Europe. However, the Fed’s efforts to take away the punch bowl of pandemic-era stimulus would prove to be a “more persistent” downside risk.

One way to test this viewpoint is by looking at the VIX, a measure of volatility sometimes referred to as the “fear” index (I think that’s a bit dramatic, I’d prefer to call it the “uncertainty” index).

The VIX peaked at almost 37 on March 7, following two weeks of escalations in Ukraine. At the time, the picture had not gotten any clearer on the Federal Reserve side of things (no Fed officials were speaking as part of the customary week-and-a-half media “blackout” period before a policy-setting meeting on March 16).

The slide down in the VIX over the last week also suggests that Russia-Ukraine remains the top story; the decline yesterday to under 19 coincided with developments suggesting that Russia would be reducing its military activity near the Ukrainian capital of Kyiv.

All the while, Fed watchers appeared only more scattered over the central bank’s next steps. As Citi forecast 0.50% interest rate bumps at each of the Fed’s next four meetings, shops like Evercore ISI note that there is a risk of “overkill” from aggressive Fed actions (pushing their forecast for two to “possibly three” 0.50% moves).

This coincides with sentiment among large fund managers that the biggest “tail risk” to markets was neither a hawkish Fed nor inflation, but the Russia-Ukraine conflict.

The BofA Global Fund Manager Survey asked 341 panelists (with $1 trillion in assets under management) about their investment approaches. The March survey was conducted from March 4 to 10. (Credit: BofA Global Research)
The BofA Global Fund Manager Survey asked 341 panelists (with $1 trillion in assets under management) about their investment approaches. The March survey was conducted from March 4 to 10. (Credit: BofA Global Research) (BofA Global Research)

However, Christopher Murphy at Susquehanna Financial Group noted Monday that the VIX is not the only measure of volatility in town. The ICE BofAML MOVE Index (^MOVE) measures volatility in fixed income markets. Whereas the VIX has fallen a third over the last week, MOVE has jumped almost 25%, in part due to the dramatic moves in U.S. Treasury yields (which contributed to a brief inversion of the yield curve yesterday).

Murphy points out that oil prices have also shown a similar trend in volatility.

“While the VIX has plummeted, other important volatility indices are not as convinced the stress is over,” Murphy wrote Monday.

The question for investors is: What’s the source of that stress?

By Brian Cheung, an anchor and reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

What to watch today


  • 7:00 a.m. ET: MBA Mortgage Applications, week ended March 25 (-8.1% during prior week)

  • 8:15 a.m. ET: ADP Employment Change, March (450,000 expected, 475,000 during prior month)

  • 8:30 a.m. ET: GDP Annualized, quarter-over-quarter, 4Q third (7.0% expected, 7.0% prior)

  • 8:30 a.m. ET: Personal Consumption, quarter-over-quarter, 4Q third (3.1% expected, 3.1% prior)

  • 8:30 a.m. ET: GDP Price Index, quarter-over-quarter, 4Q third (7.1% expected, 7.1% prior)

  • 8:30 a.m. ET: Core PCE, quarter-over-quarter, 4Q third (5.0% expected, 5.0% prior)


  • 7:00 a.m. ET: Five Below (FIVE) is expected to report adjusted earnings of $2.48 per share on revenue of $1.01 billion


  • President Biden will speak at 1:30 p.m. ET about the latest on the fight against COVID-19. The White House said on Monday the Omicron BA.2 sub-variant has been circulating for some time and more money is needed to help fight it.

  • Beginning at 1:00 p.m. ET, the House of Representatives will begin considering the MORE Act, a bill to decriminalize marijuana. The news of the upcoming vote rallied cannabis stocks even though there’s no clear path to passage in the Senate.

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