Financial markets are caught between the countervailing forces of recovery and retrenchment.
Scenario analysis is widely used in financial forecasting. Because the future is unknown, it makes sense for a forecaster to outline all the possible market outcomes (scenarios) and to then decide which course of action is most appropriate.
But there is a part of Wall Street that has come to believe that, thanks to the Federal Reserve, such a painstaking exercise may well be a waste of expensive analyst time.
After all, for at least 27 years (if we count the Brady bond bailout as a starting point), the Fed has been almost unfailingly willing to intervene to shore up markets. This engendered a reflex among investors, which may not be…