Market rout shows stocks are finally catching up to what bonds have been saying

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Stock Markets,Investment Strategy,VIX Index (Mar'21)

Markets had been showing signs of stress even before the Fed meeting. Breadth was poor and there was an unusually high degree of dispersion.

That was not pretty, but it was long overdue. The Fed moved in a slightly more hawkish direction than some anticipated, going from an expected four rate cuts in 2025 to two or less. The news was not earth shattering. Much of the market already was anticipating only two or three rate cuts, so the magnitude of the moves caught many by surprise. The CBOE Volatility Index put in a rare one-day move of 60%, from 15 to 27, a level it hasn't seen since a brief panic in August. .

"The interest expense on the debt is going to be really problematic," the money manager said. "I think that has something to do with the market sussing out that we have an interest rate problem. We used to pay $300 billion in interest expense and now it's $1.3 trillion in interest expense." The implication: if interest rates go higher the government will be forced to spend more to service the debt. The stock market has largely ignored these concerns.

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