Weekly Risk Signals

The Fed did its part to deliver largely what the market expected, but the April jobs report did not. Short-term conditions appear to have shifted in the risk-on direction. The debt ceiling fight, which could reach its breaking point in just over three weeks, becomes the key event to watch now. The markets may have just two weeks or so to see progress before traders really start hedging their bets.

There are no changes to the signals this week, which continue to indicate that conditions still aren’t terribly positive. Risk asset prices still don’t seem to want to broadly move higher here even though the data still looks pretty good. Lumber prices are making me worried.

The equity markets are beginning to signal the risk-off scenario that I’ve been warning about for a while. Both the utilities and lumber/gold signals flip to risk-off this week, making three of the four signals I monitor indicating caution. This has been a slow build that’s taken about a month to develop, but the risk asset markets appear to finally be catching up to underlying conditions.