“Enjoy the sweet spot but also be wary of it,” Deutsche Bank’s Jim Reid said Tuesday.

He was referring both to the current period of relative market calm and, more broadly, to the post-September market regime which, with the notable exception of a very rough December for equities, offered some respite from nine months of grinding losses for stocks, alongside an egregious drawdown in bonds and an oppressively buoyant dollar.

For Reid, the turning point was the peak in rates vol, which coincided with something like a tentative consensus on the terminal rate.

Reid called that chart “in some ways the most important graph explaining the market rally since mid-October.”

Terminal rate expectations peaked at around 5.14% in early November, before meandering around 5% since then, as markets assessed the first signs of moderating inflation in the US and Fed officials’ language around a downshift to smaller hike increments.

Needless to say, rates vol was the sponsor of last year’s rolling market “event.” I’ve returned to that point again and again in these pages. Reid underscored it. “Over the last 12 months, risk assets have been very correlated to rates volatility [and] in our view this has been driven by the initial uncertainty and then certainty about the terminal rate,” he wrote.

It follows that everything changed in mid-October, and indeed, Reid said as much rather explicitly. “Everything turns from that point [and] global returns since October 12 have been nothing short of phenomenal,” he went on to say.

There’s a little more to the story than that, and Reid did delve into more details in the full note, but his overarching narrative was largely correct.

So, what could go wrong from here? Well, a recession, for one thing. And Deutsche Bank still thinks that’s coming. Just not yet.

After reminding market participants that they were, in fact, the first major bank to call for a US recession, Reid suggested it’s still too early for a downturn to actually materialize and that, as such, it’s hardly surprising markets managed to stabilize once terminal rate expectations settled.

“It does feel that October marked the end of the once-in-a-generation rate shock for financial markets,” he wrote, adding that,

At the start of 2022, markets simply weren’t set up for a series of rapid changes in central bank expectations, which began an arduous, painful and very volatile discovery process as to where rates would need to go. Assuming this discovery process is now firmly in the rear-view mirror, or at least confined to a narrower landing zone, it is easy to explain the positive narrative since. We think we are currently in a positive ‘no man’s land’ between the peak rates/ inflation /volatility shock and the recession.

If you’re wondering how long markets can persist in this comparatively pleasant “no man’s land,” Reid noted that the median distance from the first rate hike to recession in cycles going back seven decades was 28 months. The shortest lead times were 11 and 19 months.

The implication, using the median, is that it could be summer of 2024 before a US recession comes calling. If the current cycle were to match the fastest first-hike-to-recession episode in the sample, the downturn would start next month.