(The opinions expressed here are those of the author, a columnist for Reuters)

LONDON - Call it seasonal blues, poor positioning or a nagging anxiety about being wrong-footed, but wavering world stock markets appear to many to be uncomfortably prone to a left field hit.

It doesn't take a sleuth to spot a whole heap of macro event risks out there - or that the financial universe is not best priced for those as it heads for the final quarter of 2023.

Another U.S. government shutdown hoves into view this week with 2024's White House election now on the horizon, threatening sovereign credit ratings just as markets struggle to absorb mounting debt sales and the Federal Reserve's balance sheet rundown removes it from the fray.

And a smouldering Chinese property bust and increasingly rancorous geopolitics darken the global economic outlook just as an oil price rebound spurs headline inflation rates still well above targets - a development that could well force the Fed and other central banks to hold credit tighter and for longer than many have bet.

And yet, until this week's shakeout at least, implied volatility gauges across stock, bond and currency markets had been subsiding to their lowest in years.

Only 10 days ago, the VIX one-month gauge of implied S&P500 volatility recorded its lowest close since the COVID-19 pandemic first hit three years ago. The equivalent MOVE index of one-month Treasury bond volatility touched its lowest since before the Fed first raised rates in March 2022 and exchange rate volatility captured by the CVIX have again hovered around those pre-tightening levels since mid-year.

The most basic reasoning is that investors have finally been dragged kicking and screaming from hugely defensive investment positions into an assumption of a soft U.S. economic landing along with what's been sarcastically dubbed an "immaculate disinflation".

Confounded by this year's additional fillip from the artificial intelligence craze that added juice to mega cap tech stocks and flattered double-digit gains in the main benchmarks, an element of FOMO - or fear of missing out - has emerged too.

The change of heart came drip-by-drip with every month's economic data - the U.S. economy and labour market had simply not yet rolled over after 18 months of swingeing Fed rate hikes and as inflation more than halved.

And after three quarters of oddly poor positioning -underweight equity and overweight bonds and cash - the worm had turned in portfolios by September.

The soft landing bit at least is now overwhelmingly consensus thinking, according to asset manager surveys. Many investors have removed underweight equity positions, some even chasing the tech-led U.S. market higher and doubling down on bonds to catch a "peak interest rate" moment to boot.

And few have seemed minded to hedge those new positions in options markets, perhaps convinced the untypical correlation of stock and bonds losses of the last couple of years would reverse to protect portfolios in a clear run to year-end.

The continued positive correlation of equity and bond market losses this week, however, will have unnerved the herd again - not least because a fresh surge in bond yields hits that narrow tech-led group the hardest.



And yet most of the macro economic or earnings risks still seem in plain sight. Few can surely be unfocussed on central bank policy, economic activity and politics - the "known unknowns" in the parlance of former U.S. defence secretary Donald Rumsfeld.

What worries some now is what Melissa Brown, managing director of applied research at quantitative research firm Qontigo, fears are the "unknown unknowns" embedded in stock and index performance.

To highlight this, she shows a rising "risk spread" between fundamental models of risk - based on observable earnings projections and individual company or sectoral drivers - and statistical models derived from market pricing and dynamics.

That spread - which shows the statistical model predicting a higher risk than the fundamental analysis - returned earlier this year to peaks not seen since April 2009. Although it's off its highs since, it remains well above averages for the 40-year series.

"We believe this indicates that the statistical models may be 'seeing' a risk not captured by our fundamental models," Brown wrote. "Could it be 'concentration risk'?"

Brown posits that it may be concentration of portfolios in the narrow leadership of so-called "magnificent seven" leading U.S. stocks - Apple, Microsoft, Amazon, Alphabet, Meta, Tesla and Nvidia - and the wider index implications of a shock in any one of them that is now a possible curveball.

Hedge funds held record exposure to these seven stocks last month, according to Goldman Sachs, and they made up about 20% of the total net market value held by hedge funds it tracked.

Along with sky-high valuations and a "crowding factor" that has many investors chasing the same names, red flags are flying - and yet without an obvious identifiable trigger.

"The prolonged low volatility period since late April has resulted in a higher-than-prudent willingness to speculate in the market, which manifests itself through concentrated portfolios and a lack of downside risk protection," Brown concludes.

"As both the macro and geopolitical environment remain unpredictable, the probability of a risk event trigger remains larger than normal."

And yet for others, not least due to the overwhelming about-face in consensus this year and also the wobble this week, the simplest trigger for a shakeout may just be recession after all.

"Recession risk remains material and is higher than what the markets are pricing in," Shamik Dhar, Chief Economist at BNY Mellon IM told clients this week. "Whilst 'recession fatigue' from a downturn that never seems to arrive is understandable, this fatigue is not an excuse to abandon the data and adopt an investment strategy of hope."

The fuzzy radar screen may make for a rough final quarter. The opinions expressed here are those of the author, a columnist for Reuters

(Editing by Alex Richardson)