Weekly Risk Signals

Short-term market strength has faded a bit here, but conditions still don’t look like they’ve pivoted to risk-off yet. The data we’re going to get this week, namely inflation and retail sales, are likely to confirm the trend that’s been building throughout 2023. The recession narrative continues to loom, but it’s increasingly looking like that may not happen until at least 2024.

Tighter Fed policy could create some downside risk should the central bank put additional future rate increases on the table. The composition of the U.S. equity market rally has changed as investors may have maxed out on the China reflation trade and are shifting their focus back on U.S. assets. I think that this rally may have about 4-5 more weeks based on current intermarket signals.

Conditions may have become even more decisively risk-on than they were the previous week, despite another batch of economic data showing the economy continuing to slow. Growth, high beta and small-caps are still leading this market, while utilities and Treasuries are treading water. The one asset I’ll be watching this week is small-caps.