As markets shook off recent shocks, investors pushed valuations up so much that equities and bonds seemed to be priced to perfection, leaving little room for error. Small disappointments in, say, earnings could thus lead to massive, outsized corrections in stock prices. Now that markets seem to be getting nervous again, and since macro considerations appear to be quite important, it is timely to think about the main political and economic assumptions underpinning current valuations. What could upset these investor perceptions and lead to abrupt corrections?

Aside from the continuing search for yield, another major factor has been investors’ need for relative safety. Because there has been a rash of deeply troubling events — Brexit, frequent terrorist attacks, the eurozone migrant crisis, the risks of a Donald Trump victory in the US presidential election in November and so many others — investors perceive the world to be a dangerous place and have moved funds to asset classes that seem safer than others, whether they are US and German bonds or the few emerging markets that seem to be on the upswing such as Indonesia.

The question is what can change these perceptions? Here are our best guesses in four key areas of risk.

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