If you get the feeling various downside scenarios are having a difficult time “realizing,” you’re not wrong.

Everyone is cautious, and for good reason. From the macro to policy to geopolitics, ambiguity is the only constant. And yet, day after day, week after week, the tail risks fail to materialize in any meaningful way.

Ukraine would beg to differ, so would the handful of banks which failed recently. Kyiv, Credit Suisse, SVB and First Republic would all tell you their respective bear cases have played out, and to disastrous effect.

But, for the fortunate among us not caught up in, or directly impacted by, the war and the regional bank drama, the last six months are a story of risks that didn’t unfold, or at least not to their full potential. The US didn’t fall into a recession, for example. Corporate profits haven’t contracted as deeply as some feared. The American consumer didn’t roll over. The worst banking sector stress since Lehman somehow didn’t become systemic despite the near collapse of a SIFI. Vladimir Putin hasn’t deployed a tactical nuclear weapon, even as the Russian military continues to terrorize Ukraine’s populace. And it appears a debt ceiling deal is imminent in the US.

Knock on wood, I know, but even when sundry “next shoes” drop, it’s almost as if they’re trees falling in empty forests, to mix proverbs. Investors and traders “continue to embrace the ‘better than feared’ mantra [which] has been the market’s interpretation most of the past 18 months,” JonesTrading’s Mike O’Rourke said. “Anything other than an unmitigated disaster has been shaken off in fairly short order.”

He was referring to corporate earnings, but the same assessment applies more generally. If it’s not a total catastrophe with the potential to bring about a depression or, in the geopolitical context, a world war, it’s good. As SocGen’s Albert Edwards put it last week, while editorializing around recent bank stress, “When investors tell me this is nowhere near as bad as 2008, I can’t help but sigh. If a 1930s-style Great Depression being narrowly averted is your baseline, of course things are likely to be better.”

The natural question to ask as these tail risks keep “missing,” is what happens to hedges and rate cut bets. “To my point last week, when you have so much risk-prem built into assets and ‘over-hedging’ for event risk, a potential surprise ‘right-tail’ outcome would slingshot strong reversal flows,” Nomura’s Charlie McElligott said Thursday. By that, he meant selloffs in Treasurys and gold and an unwind in puts on the equities side, as well as buy flows from dealers covering short hedges they no longer need into spot rallies.

Like O’Rourke, McElligott took note of Home Depot and Target, which held up despite cautious commentary from both. On Thursday, Walmart likewise struck a cautious tone on the US consumer but actually raised its full-year profit forecast.

As one astute reader pointed out, the debt ceiling deal in D.C. could be a “sell the news” event (or a “buy the news” event on the bond side) given anticipatory price action, but the bond rally and easing bets continue to look offside relative to the macro and policy, something Lorie Logan underscored on Thursday.

With equities, hints from Kevin McCarthy about a resolution to the Beltway stalemate were met mid-week with call-buying and some upside “grab” behavior into Wednesday’s close, which McElligott noted was indicative of “traders getting super nervous” about a melt-up. “With all of the recently mentioned ‘crash-y downside’ demand we’ve seen in the market, the real concern now into this deal optimism is that you don’t need wingy downside, but instead, funds are now thinking about grabbing for some upside,” he went on.

Of course, none of the above means all the risks will suddenly disappear once the US decides not to default. The commercial real estate land mine is still there, for example. Indeed, CRE prices fell in Q1 for the first time in a decade, Moody’s said this week. Half of fund managers polled by BofA see CRE as the most likely source of a credit event.

The figure on the left above shows the new, May “tail risk” list from the BofA survey, which was released earlier this week.

The prevalence of tail risks is one reason why, as McElligott observed, the VIX complex is still “wildly tilted towards upside across the summer months.”

Investors, Charlie wrote, are “looking for cheap convexity in a market where S&P and Nasdaq 10-day realized volatility are both pushing back towards sub-10 prints, while obvious left-tail risks remain ‘live.'”

So, we’re still juggling grenades. Figuratively. That makes us lucky. In Ukraine, they’re juggling them literally.