With just under 80 minutes left until the Fed's decision (which may or may not have been leaked already [6]), one would think that according to confused market professionals, the biggest tail risk facing the market is the Fed hiking or alternatively, not hiking, unless of course, both outcomes lead to a surge in stocks which at least for today's session appears to be the baseline driven almost entirely by what may be a sudden drop in the VIX as uncertainty will be removed in either case, if only for a few weeks, which in turn will push XIV higher, and cascade through the Yen carry trade pathway into the E-Mini.
And yet, is the Fed's binary decision the biggest tail risk according to market professionals? According to BofA's latest Fund Manager Survey the answer is no.
Below we show what the latest, September, response is to the question "what investors consider the biggest tail risk" as well as evolution of this answer in the three months preceding.
Curiously both #1 and #2 risks, namely "China recession" and "EM Debt Crisis", are an indirect function of the recent and ongoing surge in the dollar, which will likely be exacerbated should the Fed indeed launch its first rate hike cycle in 9 years.
So while a rate hike today has been telegraphed by the punditry as the best possible outcome, it appears to also be the biggest "tail risk" among the professional community who will not admit it directly, but are certainly concerned about the downstream effects of what such a rate hike could unleash.
September
[7]
August
July
[8]
June
[9]
