Markets Are Taking Volatility in Stride, Golub Says

Summary

• Jonathan Golub argues that equity markets are not panicking despite recent geopolitical volatility, as evidenced by the lack of defensive sector rotation.
• Defensive sectors (health care, consumer staples) and cyclical sectors (industrials, materials) have declined similarly, contradicting typical panic behavior where cyclicals underperform and defensives outperform.
• Gold prices have fallen substantially, which is atypical for a risk-off environment and suggests limited safe-haven demand.
• High yield credit spreads remain tight, indicating that credit markets do not anticipate severe economic distress or default risks.
• The VIX has increased but is only in the mid-20s, not at panic levels, reflecting orderly market adjustments.
• Bond markets have repriced, with short-term rates rising due to removed expectations of Fed cuts, but the yield curve movement has been moderate and orderly.
• The oil market is in backwardation, with prices expected to decline over time, signaling that current spikes are viewed as a near-term shock likely to resolve.
• Golub implies that if the geopolitical event proves to be a minor footnote by year-end, it could present a buying opportunity for equities.
• A key uncertainty is whether market complacency is justified or if risks are being underestimated, given the volatility in commodities and bonds.
• The disparity between calm equity markets and volatile bond/commodity markets highlights the market's assessment of the event as temporary rather than systemic.