Risk-Back-On in a Week of Tape-Bombs

The successful test of the February lows by risk-assets from the S&P 500 to Bitcoin, and last week’s relative tranquility in markets, despite a challenging news environment, indicates that risk-tolerance is beginning to flourish again. We are marking April 2 as the high in the S&P 500 equity risk premium. The correction from the January top occurred as earnings surged, so valuations have corrected more than prices, creating a cushion under equities. We have probably seen the worst. The trade war-of-words has settled into a stable game in which negotiations can take place. Powell’s FOMC minutes were a train-wreck, but markets have learned not to care. Zuckerberg’s testimony shows that slavish fascination with Facebook is intact. Syria was never market-moving to begin with. The biggest risk factor now is the expanding scope and increasingly brutal tactics of the Mueller investigation, which seem designed to goad Trump into over-reacting.