Hold onto your hats, folks. The markets are a powder keg, primed to blow at the slightest nudge from economic data. UBS has sounded the alarm—investors should brace themselves for a wild ride of volatility until some seriously good news puts the recession ghosts to bed.
By last week’s close, it seemed the financial markets had taken a collective deep breath. The S&P 500, after flirting with disaster, tiptoed away with a mere 4 basis points dip, despite doomsday futures predicting a heart-stopping 4% plummet as the week kicked off.
The fear gauge, our dear old VIX, spiked to an eye-watering 65 on Monday, a level of panic unseen since the dark days of March 2020. Yet, by Friday, it had calmed down to a mere 20.4, even lower than the prior week’s close. Over in bond-land, the 10-year Treasury yield barely flinched, ending the week at 3.94%, almost locking eyes with the 3.97% mark it hit before the July payroll data shook things up.
But hold the champagne—UBS isn’t buying the idea that the markets are gearing up for a smooth upward climb just yet.
“Investors are on edge, like cats on a hot tin roof,” UBS analysts caution. “If this week’s inflation, retail sales, or jobless claims data disappoints, the market’s fragile recovery could unravel faster than you can say ‘recession.'”
This jittery mood isn’t going anywhere until investors are convinced the economy isn’t careening towards a slowdown, and until the Fed gives a clear sign that it’s ready to roll up its sleeves and get aggressive if push comes to shove.
We’re in a holding pattern, folks—no fresh jobs data until September 6. But here’s the kicker: UBS expects a flood of positive data to bolster the soft landing narrative. If that happens, and investor sentiment holds steady, we could be staring down the barrel of a rate cut come September. That’s the kind of cocktail that could fuel a risk rally in the medium term—if all the ingredients come together just right.
So, while the markets’ recent serenity might not be a herald of risk-taking resurgence, UBS sees the potential for fundamentals to light a fire under risk assets in the not-too-distant future. Get ready—it’s going to be a bumpy ride.
