Weekly Risk Signals

Last week's developments suggest that the markets may experience one final blowout before the conditions favoring an accident over the next week or two take hold. While these developments will likely be viewed as short-term positive for the markets, none of it really changes the long-term macro narrative. I maintain the view that investors are too bullish at the moment.

Short-term signals continue to indicate bearish sentiment. With small-caps badly underperforming and gold nearing all-time highs, the chances of a negative April event may be increasing. Lumber, however, remains the big tell. This is one of the stronger indicators that the economy is slowing and I believe intermarket behaviors are starting to demonstrate this again.

If you’re only paying attention to the returns of the S&P 500, you probably think everything is fine right now. The signals are beginning to suggest otherwise. The lumber/gold ratio is at multi-year lows and utilities are signaling that short-term sentiment may actually be deteriorating. There are plenty of potential catalysts that could break investor sentiment here.