Markets expect a Fed shift, though the central bank denies it. Greed levels surge, resisting pullbacks.

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In the current financial landscape, a palpable tension brews as markets lean towards anticipating an imminent Fed pivot, contrary to the central bank’s official stance. The prevailing sentiment suggests greed levels in the market are soaring to multi-year highs, as evidenced by the resilience of the S&P 500, even in the face of a pullback in the so-called “Magnificent 7.”

A noteworthy indicator of the prevailing market sentiment is the VIX, which recently touched its lowest level in almost four years. Further emphasizing the exuberance, a remarkable 51 S&P 500 stocks hit all-time highs on the same day, marking the highest number of record closes in a single day since April 2022.

However, a cautionary note emerges as investors might be underestimating the potential delayed impacts of what is being described as one of the most aggressive monetary tightening policies in history. Historical patterns reveal that changes in Fed funds rates, often with a two-year lead, have been harbingers of significant volatility events in equity markets.

The VVIX/VIX ratio is poised to hit the 2018 trend just as markets reach all-time highs, a scenario reminiscent of December 2019. Notably, this alignment kickstarted a two-month countdown to a panic-induced crash.

As the present unfolds, the question arises: Is history on the brink of repeating itself, ushering in a period of heightened market turbulence and potential correction? Investors are left navigating uncertain terrain, closely monitoring Fed signals and historical indicators to decipher the trajectory of the markets in the coming months.

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