Financial markets have been tearing ahead, fuelling abundant investment optimism even in the face of the ongoing Covid-19 crisis and health care systems creaking under the stress across much of the world. The bulls may be roaring but risks lurk. The first risk, and most obvious, concerns how the pandemic plays out. Investors’ sunny expectations are rooted in the rolling out of vaccines around the world. This feeds into an optimistic view that perhaps, from the middle of this year, economies can begin to reopen and activity can return. The hope is that households have saved much of the large sums of money distributed by governments to support incomes during the crisis, and that the economic rebound may be very sharp when it comes. Consumer spending is likely to then surge on the back of pent-up demand, boosting economic growth everywhere, including in Asia’s export-oriented economies. For that cheerful outcome to happen, we will need to see successful vaccine roll-outs in the United States and across Europe , the two global economic heavyweights badly affected by Covid-19. There is a lot of concerning news about slower-than-hoped-for vaccinations due to logistical challenges and manufacturing delays. Perhaps this was to be expected as financial markets have been surprisingly relaxed around the delay to economic reopening threatened by these difficulties. It seems that, as long as the eventual return to normality is not in question, markets are willing to look past the difficulties. A real scare would be if vaccines don’t seem to work on any new virus strains. We got a taste of what that might look like in December, when the appearance of a new, and more contagious, Covid-19 strain in Britain prompted fears about the efficacy of vaccines. These fears, fortunately, proved unfounded fairly quickly, but risk markets were spooked. In Asia, there has been markedly greater success in controlling the virus but, perhaps partly as a result, the outlook for vaccinations is less clear. As a result, the region’s recovery could yet stall, at least in some areas such as tourism and travel. The second risk that could derail the bull market is interest rates. Globally, rates and bond yields are extremely low, smothered by central banks’ ultra-loose monetary policy in supporting the economy, including large purchases of government bonds. Why the US is living on borrowed time with near-zero interest rates Furthermore, central banks have committed to holding interest rates low for a long time to boost investors’ confidence. This flood of liquidity has driven up the prices of most risky assets , such as equities and corporate bonds, to historically elevated levels. At these valuation levels, a sudden rise in interest rates is likely, at the very least, to cause short-term disruption in markets and, at worst, trigger a sell-off. This would be especially damaging if it was caused by a surge in inflation, perhaps due to supply problems and rising wages in a rapidly reopening economy. Given that most major central banks keep a close eye on inflation, a sharp rise would increase the likelihood of a rate increase sooner than promised. This, in turn, could sweep the rug out from under high-flying equities and credit markets. It is therefore reassuring that the US Federal Reserve has repeatedly been very clear in its commitment to keeping policy loose and yields low, even if it sees some temporary price jumps during economic reopening. Still, it remains to be seen whether it can keep up the policy for the rest of the year. On balance, neither of these risks has dented market optimism, yet. Chances are that vaccine roll-outs will overcome the initial hiccups, and the world’s major economies will achieve herd immunity and a return to a sense of normality, even if somewhat later than hoped for. And central banks should continue to err on the side of being too easy with their policy, rather than tightening prematurely. But, given how far markets have come in a short space of time, both risks need to be watched closely. Patrik Schowitz is a global multi-asset strategist at JP Morgan Asset Management