The first two months of 2024 had all the ingredients of an equity selloff with one notable exception: Lower stocks.

Maybe a closely-watched update on producer prices due out of the US on Friday will tip the scales against stubbornly resilient equities. The release was poised to garner more attention than usual given the read-through for the Fed’s preferred inflation gauge. In short, markets were looking to PPI for confirmation of the signal from a very uncomfortable CPI release. Or, preferably, the opposite: A sign that CPI was “wrong” and that PCE price growth will be more favorable when it’s released later this month.

I’m not convinced it matters. Barring a truly dramatic turn, policy rates are headed lower. That counts more than how much lower. Sure, more rates are better all else equal. But all else isn’t equal. If you think about the macro conditions that’d prompt the Fed to deliver cuts in excess of those deemed prudent to keep the real policy rate steady in an environment where inflation’s expected to moderate somewhat further, you’re left to ponder a rapid and significant economic deceleration — not an outcome that’s typically conducive to robust corporate profit growth and stock rallies.

In that context, it’s perhaps not so surprising that stocks have decoupled entirely from the trajectory of aggregate 2024 rate-cut pricing, as illustrated rather poignantly in the updated figure below.

Engineering a soft landing historically meant staying ahead of the curve — adopting a policy stance that’s perhaps easier than it “should” be in the face of good growth outcomes. This Fed doesn’t have that luxury. It’s not so much that headline price growth’s running a bit warm. It’s that headline price growth was recently (quite recently) running very hot. As long as that memory’s still fresh and the economy’s still adding jobs, the Fed has very little in the way of air cover to pursue a soft landing through easier policy.

With that in mind, everyone knew 175bps of priced-in cuts was pushing it for 2024 in the absence of confirmation from the data that the US economy was slowing. Notwithstanding Thursday’s weak read on nominal spending, the balance of data says the opposite: If anything, the US growth impulse picked up steam early this year, building on 2023’s outperformance. The contrast with recessions in Germany, the UK, Japan and China’s deflationary quagmire could scarcely be any more stark.

To state the obvious, 3% growth, a sturdy labor market and 75bps of rate cuts (how things are shaping up in the US) is an objectively tasty recipe. Why would stocks not rise in such a scenario?

That’s not necessarily a rhetorical question, which brings me quickly back to the notion that on the surface anyway, 2024 has given investors plenty of reasons to sell. Or at least to buy protection. And yet they haven’t done much of either.

The figure below shows the updated “tail risk” list from BofA’s monthly fund manager poll. Some readers have doubtlessly seen it already this week.

Higher inflation may be keeping some investors up at night, at least relative to other risks, but recall that the same poll betrayed near unanimity around the notion that inflation will be lower 12 months from now.

Geopolitics is still high on the tail risk list but, again, you wouldn’t know investors recognized any tail risks at all based on demand for downside protection, with is negligible to nonexistent.

Of course, you can’t really hedge most geopolitical risk, and as I’ve been over dozens of times, lackluster interest in hedges could reflect low underlying equity exposure among some key investor cohorts. And yet, oil can’t catch much of a break either, which to my mind means that at the very least, demand concerns tied to multiplying recessions outweigh the geopolitical premium. Even that’s unsatisfying, though, because equities aren’t reflecting those recessions. Rather, they’re trading like the US economy’s the only economy in the world.

We should recognize that the current set of geopolitical risks is indicative of the most perilous conjuncture since the Soviet Union was a (bad) thing. With allowances for Americans’ understandable inclination to write off conflicts (all conflicts) as “over there” tragedies, a ground invasion of a NATO neighbor by an aggressively irredentist Russian dictator is an existential risk. First he was losing. Now it’s a stalemate. He might still win. Sort of. And it’s not clear which outcome is safer. This is man, after all, who US intelligence now believes is seriously considering putting nuclear weapons into orbit. Do we really want him to lose? (I’m just kidding. Maybe. We do want him to lose. However, you have to wonder what goes through his mind on days like Wednesday, when he lost another battleship to Ukrainian sea drones.)

In the Mideast, Iran’s losses to assassinations targeting militia commanders in Syria, Iraq and Lebanon are piling up to the point that the operational capacity of those Quds-allied groups can be fairly judged as materially impaired. There’s not a lot Tehran can do to hit back directly, but… well, just “but.” Israel assassinated another Hezbollah commander on Thursday. Between Hezbollah, Hamas, Kataib Hezbollah, Al-Nujaba and even the IRGC itself, Iran’s down at least seven key players and facilitators since late December. That’s a lot. These guys aren’t replaceable. Not readily, anyway. At the same time, Israel’s now all but ignoring The White House’s calls for restraint in Gaza, where the IDF is poised to move on Rafah imminently at the risk of a total bloodbath. Half of the strip’s population is sheltering there.

If the wars aren’t enough, there’s a commercial real estate crisis brewing. Note that “credit event” took the number three spot in the tail risk list mentioned above. The same fund managers said the most likely source of such an event is US CRE.

The mainstream financial media’s having itself a veritable field day documenting where the office debt is, what the risks are in multifamily, how large the land mines are and so on. Every day there’s another CRE feature story.

Personally, I think the CRE narrative’s real. This is not a drill, as they say. But in some respects, the issue’s the same as it is for geopolitics. There has to be a transmission mechanism to equities, and beyond regional banks and foreign lenders who unwisely got themselves overextended in the US office space, it’s not obvious what that conduit is. The big banks aren’t heavily exposed, and there’s no chance (none) that this Fed, let alone this Treasury, is going to allow a full-on bank crisis in this election year (note the emphasis). Anything that further undermines voters’ faith in Joe Biden’s capacity to manage the economy could materially increase the odds of another term for Donald Trump. You don’t need any conspiracy theories (or right-wing web portals) to suggest that a lot of top officials in Washington — Democrats and Republicans alike — are less than excited about that prospect.

Coming full circle, I think it’s important to note that this is no run-of-the-mill “wall of worry.” These wars will change the course of human history. Commercial real estate is a credible, large, looming risk which, even if it’s not systemic, and even as it was well-telegraphed, could very well claim some bank lives. Every major economy sans the US and India is in a recession (or at least they were in Q4). China’s staring down outright deflation. And — forgive my candor — there’s a very good chance that American democracy as we know it dies in November.

But, again, this is all playing out against a domestic (i.e., in the US) economic backdrop that’s a picture of health if you don’t count still-elevated inflation. Growth’s strong. So’s the labor market. Maybe Americans spent less in January, but there’s no worse bet on Earth than a bet against American consumerism. US tech shares are in a mini-mania. Maybe that’ll end in tears, but if you were old enough to pay attention to markets in the late 90s, you know it can be a while before the crying starts. In the interim, a lot of money’s made.

The cherries on the proverbial sundae are the three rate cuts the Fed has penciled in for this year. What stocks have told us in recent weeks is that it really doesn’t much matter whether it’s three or four or five rate cuts, just as long as the next moves are lower. One hot CPI report makes little difference on that score.

Now, who wants to sell US stocks based on the war(s)? Or on Tuesday’s CPI report? Or on the CRE meltdown that everyone saw coming two years ago? If your hand’s raised, I have just one more question: What are you going to buy if not US equities?

Finally, if you’re wondering whether I intentionally set out to pen something ambiguous such that I can claim I was “right” irrespective of whether equities fall, rise or move sideways, the answer is “Of course, I did.”