Stocks may seem serene, but watch out for these risks

investmentnews.com:

The S&P 500 is up over 15 percent so far in 2024 after last year’s 24.5 percent return. The VIX, aka the ‘fear index,’ is bumping along at record lows. And even the gold bugs are feeling chipper with the yellow metal up over 12 precent year-to-date.  

Seriously, even Goldilocks couldn’t find a bear in this market. Not a Papa Bear. Not a Mama Bear. Not a wee tiny Baby Bear.

Despite this total ursine absence, there is still risk in the market, however. You just have to look across the pond to find it, according to Jim Thorne, chief market strategist at Wellington-Altus.

“I think the biggest geopolitical risk is a credit event in Europe right now,” said Thorne. “I think if you go back to 2009 and 2010, a credit event in Europe that spreads around the world would be the one risk that I think investors need to take a look at.”

It’s worth noting that the French 10-year government bond is yielding 3.3 percent, while the German 10-year is now slightly below 2.4 percent. Both of those are substantially lower than the 4.25 percent that Uncle Sam is paying, meaning that there are clouds on the European horizon. The big questions are whether they are storm clouds and if they have the capacity to spread to the US.

Speaking of the US rate environment, Thorne believes the Fed is making a “massive policy mistake” and should be cutting rates right now to protect against “fiscal consolidation and an air-pocket” ahead. In his view, the growth in the US economy is a “mirage” supported by a 6.5 percent budget deficit and debt levels not seen since World War Two.

“With an 18- to 24-month lag in cuts, the Fed should be cutting. Right now, they’re not. So that suggests to us that investors should be prepared for rates to really start to ramp