Core Viewpoint - The market is currently embracing a pro-growth agenda, with both the Federal Reserve and market participants showing a willingness to overlook previous concerns about inflation and risks, leading to a significant rally in equities and bonds [1][3][4]. Market Dynamics - The third quarter saw a remarkable performance compared to the second quarter, with the S&P 500 rallying approximately 8% amidst low volatility, indicating a strong market sentiment [5][9]. - Credit spreads are at post-global financial crisis all-time lows, suggesting a perceived lack of risk in the marketplace [3][4]. - The implied volatility of interest rates, as measured by the move index, has returned to levels seen in 2021, indicating a stable outlook for interest rates [4]. Bond Market Response - Contrary to expectations, long-dated bonds have rallied, allowing market participants to lean into growth despite concerns about inflation [1][4]. - The Treasury has effectively managed its issuance strategy, delaying new issuances during the government shutdown and focusing on shorter-term bills, which has contributed to the stability in the bond market [1]. Inflation Expectations - The market appears to be accepting a new normal for inflation expectations, with a consensus forming around a range of 2.5% to 3.5% for the foreseeable future, without causing significant disruption to economic growth [1][6]. Risk Assessment - The current market environment is characterized by extremely low correlation among S&P 500 constituents, with a realized correlation of zero, indicating that while the market is rising, individual stocks are moving independently, which may mask underlying risks [6][7]. - The low volatility observed in the market is reminiscent of the lowest volatility year in 2017, suggesting a calm before potential market disruptions [8][9].