Markets are suffering from ‘dread risk’: Strategist

The aftermath of the financial crisis still seems to be taking its toll on investors, very recently in the form of a psychological fear reflex known as "dread risk."

This is the argument made by Deutsche Bank macro strategist Oliver Harvey. After a low-probability, high-consequence negative event, a sense of "dread" can lead to an economic climate of weak investments and skittish investors, he said — which is just what may be happening now.

Harvey references a study that showed an aversion to commercial flights after the 9/11 attacks led to an increase in traffic-related incidents. Within economics, a similar reaction after the financial crisis of 2008 would explain why people are still fearful of spending and investing even with very low interest rates, he said.

Highlighting the "dread risk," Harvey said, is the inability of central banks such as the Bank of Japan and Sweden's Riksbank to impact markets even as policymakers cut rates further.

Read MoreThe danger of negative interest rates

"I think it's a useful term to describe some of the price action that's been happening in markets over the last couple of weeks, which we've seen central banks turning a lot more dovish," Harvey said Tuesday on CNBC's "Trading Nation." "And yet this hasn't had an effect, risk sentiment continues to be very negative."

In a June speech, the Bank of England's chief economist, Andrew Haldane, stressed the term as a potentially counterproductive approach among investors.

Until investors have more clarity on the intentions of governments in the U.S., China and the euro zone, Harvey expects the "dread risk" environment to persist.

"From my perspective, we have a problem with competing priorities," he said. "I think the reason that markets are preoccupied by this dread risk is because they don't have a clear signal from policymakers, and we certainly don't have a clear signal about stimulated growth."

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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