Commentary
Tariff Uncertainties
January 21, 2026
Tariff uncertainty reigns. The US Supreme Court has again delayed its ruling on the constitutionality of the tariffs the US has imposed that are based on “The International Emergency Economic Powers Act of 1977.” In addition to the delayed Supreme Court decision on tariffs, President Trump has recently issued warnings to several European countries that more tariffs are coming if the European Union does not negotiate with the US over control of Greenland. The equity market reaction to these recent tariff uncertainties have been negative yet modest as compared to the initial reaction to the “Liberation Day” tariff announcements back in April 2025. What is clear, though, is that the tariff debate is not going away any time soon, and when bond yields rise while equities are falling, it can be a very serious warning sign to market participants of volatility ahead.
Why Volatility is Low
January 14, 2026
Uncertainties abound even as observed longer-term momentum and the volatility of major US equity indexes send messages of relative calm. We think there are at least three important reasons that equities have been able to continue climbing what appears to be a steep wall of worry. In this research, we will explore (1) the Federal Reserve’s commitment to calming markets; (2) the offsetting positive and negative uncertainties coming from geopolitics, artificial intelligence, and tariffs; and (c) the appreciation that volatility is a very poor measure of the risks that worry traders and investors. Environments with distinctly different competing narratives, such as we have with some of the uncertainties, can create out-sized activity in far-out of-the-money options to hedge the big moves where direction is unknown. Competing narrative conditions can allow for calm before the storm hits.
Download Why Volatility is Low
The Federal Reserve in Transition
January 7, 2026
The future of the Federal Reserve (Fed) and US interest rate policy will be a major debating topic during the first half of 2026 and probably beyond. There are far-reaching market implications for exchange rates, gold, equity allocations between US and non-US stocks, and even cryptocurrencies. Here is what is coming. President Trump is expected to announce his choice of the new Chair of the Fed. The Supreme Court will rule on whether President Trump can terminate the appointment of Lisa Cook as a member of the Fed’s Board of Governors. Jay Powell’s term as Fed Chair expires in May 2025, yet he has the option of remaining as a Governor on the Fed Board serving through January 2028. Several regional Fed President slots will change hands. All these changes will come on top of the debate of how low the Fed should take its federal funds rate target, whether inflation will remain above the Fed’s 2% target, and whether the US employment situation is deteriorating.
Download the Fed in Transition
Sources of Volatility in 2026
December 17, 2025
Market participants in the year 2026 have plenty of uncertainties to process with a few new twists and some themes carrying over from the end of 2025. We want to examine five debates, including the outlook for Federal Reserve (Fed) rate cuts, the evolving artificial intelligence boom, cryptocurrencies, oil prices, or polarized US politics. We continue to believe that these debates are often characterized by two competing and starkly different narratives, meaning that there is a highly elevated probability for abrupt, sharp price moves when one narrative gains the upper hand. In this environment, volatility as commonly measured is a very poor indicator of downside risk given the elevated potential for serious fat-tails in risk-return probability distributions. Note that this is not a forecast of negative price action, as markets can always climb a steep wall of worry if the worries do not materialize. Our point is that both historical and implied volatility may underestimate both up and downside risk by a significant degree during 2026.
Download Sources of Volatility in 2026
Private Equity Intersects Public Market Risk
December 10, 2025
The community of traders and investors focused on publicly-traded securities, from stocks to bonds to options, are now having to pay considerable attention to what is happening in private equity and private credit. This is not a new concept, given that the largest US companies make up only small part of the total economy, and that many large companies are increasingly opting not to go public and remain private. What has super-charged the role of private equity and credit as a potential driver of what happens with publicly-traded securities has been the revolution in artificial intelligence (AI) which has linked sectors of the economy in ways that were not as relevant in the past. As a result, the intersection of private and public markets has some very important risk management considerations both for short-term stock and options traders as well as longer-term asset managers of pension and endowment portfolios that often combine both private and public investments. Even if your portfolio or trading activity does not involve private equity, you now need to assess contagion risk.
Download Private Equity intersects Public Market Risk
AI and Bicoin in Motion
December 3, 2025
The community of traders and investors focused on publicly-traded securities, from stocks to bonds to options, are now having to pay considerable attention to what is happening in private equity and private credit. This is not a new concept, given that the largest US companies make up only small part of the total economy, and that many large companies are increasingly opting not to go public and remain private. What has super-charged the role of private equity and credit as a potential driver of what happens with publicly-traded securities has been the revolution in artificial intelligence (AI) which has linked sectors of the economy in ways that were not as relevant in the past. As a result, the intersection of private and public markets has some very important risk management considerations both for short-term stock and options traders as well as longer-term asset managers of pension and endowment portfolios that often combine both private and public investments. Even if your portfolio or trading activity does not involve private equity, you now need to assess contagion risk.
Download AI and Bitcoin in Motion
Fed Faces Regime Change
November 26, 2025
Regime change is happening, and major transitions are always difficult to interpret and analyze, especially if there are several major yet independent transitions occurring simultaneously. The Federal Reserve (Fed) is facing an internal transition to new leadership that promises to change its culture. At the same time, the Fed must confront external transitions that impact its dual mandate of encouraging full employment and price stability while managing a payments system being challenged by crypto-currencies, stable coins, and central bank digital currencies (CBDC).
Download Regime Change at the Fed
Politics and Risk
November 12, 2025
Equities, fixed income, and exchange rates all face considerable US political risks in the coming year. We are closely tracking the big four: (1) Funding the government through January 30, 2026, shutdown rinse and repeat? (2) Tariff decision from the Supreme Court? (3) New chair of the Federal Reserve? (4) November Congressional elections? Political events have the power to move markets, suddenly, and sometimes in unexpected ways. Political risks are inherently different from typical market or economic risks. The dynamics of political risk respond to shifts in public opinion and can turn on a dime. And just to make things more complicated, political risks are overlayed on top of the traditional market and economic risks.
Mg-7: Breaking up is hard to do
November 5, 2025
Over the last decade, the Magnificant-7 (Mag-7) high-technology stocks have led the whole US equity market up and up. With occasional exceptions, these seven high-flying stocks have increasingly traded as a pack, with the correlations between the various stocks moving higher and higher, especially since the pandemic of 2020 and the Artificial Intelligence (AI) boom that took off with the release of ChatGPT3.5 at the end of November 2022. But these companies all do very different things. Nvidia sells computer chips, Tesla sells electronic vehicles with auto-pilot capabilities, Amazon runs a merchandise sales platform and provides cloud services. Google specializes in internet search. Microsoft sells business software and cloud services. Meta Platforms (Facebook) is all about social media. Apple is in the smart phone business. For risk managers, a big question is whether these stocks will someday go their own way and dance to different drummers? For sure, someday these stock returns will take different paths, but it may not happen without a correction to this long-lasting bull market in equities. To appreciate the correlation patterns, an empirical examination using the Diversification Ratio method yields some useful insights to guide our analysis.