One of my favorite Wall Street expressions surmises that the real action in the financial markets happens when “the lines of fear and greed cross.” That’s certainly where we are at the moment: The combination of the Russian invasion of Ukraine, the corresponding efforts by a number of Western nations to choke off the Russian economy, and the prospect of the Federal Reserve raising interest rates to slow down inflation in the United States has sent the stock and bond markets reeling so far this year. The S&P 500 index is down 13 percent year-to-date; the Nasdaq is down nearly 20 percent. The yield on the average junk bond is now 5.7 percent, according to the Federal Reserve Bank of St. Louis, up a whopping 31 percent from the start of the year. That means anyone who bought a junk bond at the beginning of the year is likely sitting on a substantial mark-to-market loss. 

Even the supposed safe haven of Bitcoin is unreliable, down 12 percent so far in 2021. As I’ve been predicting for a while, we’ve clearly moved beyond the state of irrational exuberance in the financial markets to one of shock. We’ve transitioned from “risk on”—another one of my favorite Wall Street terms of art—to “risk off.”