MacroscopeThe market’s ‘buy the dip’ mindset is close to breaking point

It only took three trading days.

After surging 44 per cent last Thursday to its highest level since Donald Trump’s upset victory in the US presidential election, the Vix index - the so-called “fear gauge” of Wall Street that’s been roused from its slumber by escalating tensions on the Korean peninsula - had already fallen back by Tuesday morning back to the level just before the geopolitical standoff.

So much for fears that Trump’s bellicose rhetoric would trigger a sharp and sustained sell-off.

The speed at which global equities recovered from last week’s North Korea-driven decline is the latest example of international investors’ inclination to hold their nerve and “buy the dip” whenever markets take a tumble.

So convinced have investors become that every sell-off will be followed by a rally relatively quickly, so even the gravest of threats - the first increase in US interest rates in almost a decade; Britain’s vote to leave the European Union; the loss of confidence in Trump’s pro-growth policy agenda and the plethora of geopolitical risks - have failed to bring about a major correction in asset prices.

The resilience of markets stems mostly from eight years of ultra-loose monetary policy, which has heavily distorted asset prices, desensitising investors and traders to all sorts of risks in the global economy.