Weekly Risk Signals

The developing uptrend we were seeing in long-term Treasuries over the past several weeks got quickly and decisively turned back. Lumber is still looking relatively strong here and has confirmed the stealth rally we’re seeing in both industrial and materials stocks in recent weeks. Utilities are trying to develop a little momentum here, but nothing that would suggest a major sentiment shift just yet.

The Treasuries signal is the first to break and flip to risk-off in several weeks, suggesting that the 1st half rally in stocks could be easing. The summer months have so far been characterized by steady gains in risk assets and very low volatility. Overall, S&P 500 earnings are expected to drop nearly 7%, which would be the worst number since the onset of the COVID pandemic.

Is the geopolitical environment about to hit the risk asset markets? The problem is that with the VIX at 3-year lows, there’s little margin of error should there be any negative developments. The tech trade looks like it might finally be fading. We could be transitioning into a period where the risk signals go from risk-on to mixed.