Risk has not been eliminated, volatility has decreased first! The collective of US stocks and bonds have entered an "abnormally calm period".

From the stock market, bond market to the foreign exchange market, various volatility indicators are falling to the lowest levels of the year. Data shows that the CBOE Volatility Index (VIX), also known as the "Wall Street Fear Index," recently fell to a new low since December last year. The global currency volatility index also hit a one-year low, while the U.S. bond volatility index fell to levels seen at the beginning of 2022. This calm trend is in stark contrast to the macroeconomic environment filled with risks - geopolitical tensions, stubborn inflation, Trump's threats to the independence of the Federal Reserve, among other risk factors are still present. However, the market is betting on limited price volatility. A closer analysis reveals that this contradictory phenomenon has its reasons. Mohit Kumar, Chief Economist at Jefferies International, states that the main reason is the "large amount of sideline money." This means that many investors are ready to buy on dips, thus suppressing the spread of selling behavior. Secondly, the global economy is far from sinking into a recession - when Trump stirred up a global trade storm in April this year, many believed that a recession was inevitable, leading to several weeks of severe market volatility. In fact, this U.S. President has scaled back some of his extreme tariff threats, reinforcing investors' perception that his bark is worse than his bite. Analysts jokingly refer to this behavior pattern as "TACO" (Trump Always Caves Out), which is prompting investors to enter the market for fear of missing out on the rally. Guy Miller, Chief Market Strategist at Zurich Insurance, says, "Investors are watching the market climb, aware of the risks but feeling compelled to participate." It is certain that the market has experienced brief turbulence this month. Due to disappointing job data and tariff policies, the VIX index briefly approached 22 points, but quickly followed the familiar pattern of rapid decline seen by options traders. This week, the S&P 500 index hit a new high, and mild inflation data strengthened expectations of a Fed rate cut, further suppressing volatility. Compared to the market's initial skepticism towards a rate cut earlier this year, the money market has now fully priced in two 25 basis point rate cuts this year, and perhaps even a third cut. Brendan Fagan, strategist at Bloomberg New York, says, "The signals the market is sending are almost provocative. However, we are still discussing potential stagflation, policy errors, or unexpected shocks from the White House. If these risks are real, the market seems to be completely ignoring them. It's hard to tell if this is a temporary calm in the 'summer lull' market, or..." Nevertheless, some institutions have sounded the alarm on the market's blind optimism. During Trump's first term, the VIX index fell below 10 points at the end of 2017, breaking records, but then skyrocketed to 50 points the following year. Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International, warns that as the market enters a "potential turbulent period," investors must remain vigilant. The institution believes there is a 20% probability of the U.S. triggering a cyclical recession, as the impact of escalating tariffs gradually seeps into the economy. Ahmed adds that the continuously expanding debt burden and spending levels of the U.S. government may force the Federal Reserve to adopt unconventional measures such as yield curve control, which could distort U.S. bond prices and trigger market turbulence. "The U.S. is entering a phase where fiscal policy predominates, with government spending plans increasingly overshadowing monetary policy. How the Federal Reserve handles this will be crucial for market stability."