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How much risk will investors add after Greece and the Fed?

A photograph of Jeroen Dijsselbloem, Dutch finance minister and head of the group of euro-area finance ministers, sits on a newspaper front page following the outcome of the Greek referendum outside a kiosk in Athens.

Major markets are relatively flat so far in 2015, but there are several reasons to be optimistic about risk assets such as stocks.

On the top, things don’t look everything different from this past year. Growth remains pretty weak and easy money is plentiful – this time in Europe, Japan and emerging markets.

Global investors who\’ve likely loaded on both equities and bonds with this point are most likely trimming their exposure a bit due to concerns about Greece, worsening liquidity, and impending rate hikes through the U.S. Fed.

“Our guess is that investors have in love with the rumor, but will buy on the fact, supporting risk assets once we pass these two events,” said Jan Loeys, head of asset allocation at J.P. Morgan.

Since he thinks any contagion if Greece exits the eurozone will be contained, the more pressing threat to risk markets hails from coming rate hikes by the Fed. That’s because there is no precedent for that U.S. central bank normalizing rates after this type of long period of fast money.

“The typical event analysis of methods markets have reacted to past instances of a first-hike thus cannot be used like a good signal of the items to expect today,” Loeys told clients. “Higher uncertainty requires greater risk premia. But past the Fed first hike, our best guess would be that the world will not have come to an end, and that investors tends to buy risk.”

How much risk will investors add beyond Greece and also the Fed? Probably only a little bit, ever since they were already long stocks and credit heading into 2015. It’s natural for them to wonder just how much longer the rally can last.

Loeys noted the twin risks of the Fed creating a mistake in overestimating productivity growth and underestimating inflation risk somewhere, and the risk of a debt crisis in emerging market on the other – with the first risk potentially triggering the second – have him convinced to hold only small overweights in equities and credit.