The market is underestimating U.S. Fed risk even after rout, Bank of America says - BNN Bloomberg

A late-summer lull is nowhere to be seen in the stock market, with traders recalibrating their expectations after a blunt warning from the Federal Reserve chief in Jackson Hole. Most likely, they have a long ways to go.

“Equities have been particularly complacent about the changed macro environment and policy setup, where the Fed fighting inflation through financial conditions means risk asset rallies both force and allow them to hike more aggressively,” Bank of America strategists including Gonzalo Asis wrote in a note to clients. “As investors return from Labor Day, we believe there is still plenty of room for equity vol to catch up with levels of stress in other asset classes.

Concern about the stock-market complacency has somewhat eased in past week, with the VIX topping 25 after trading below 20 earlier this month.

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