Weekly Risk Signals

The utilities and Treasuries signals are confirming what we’re seeing playing out broadly in the markets right now - in the near-term, all signs point to risk-on conditions. Most market signals are pointing to the fact that investors are comfortable adding risk here. This environment could last until Powell and the Fed do something to reset expectations. Lumber is even coming back to life a little bit here.

In the near-term, the market has shifted to a much more risk-on direction. Emerging markets could finally be setting up nicely here. The China reopening trade is starting to show up in things, such as airline flight activity. The debt ceiling debate is finally going to start in earnest this week. This could be the event that finally initiates the longer-term return of traditional risk-off behavior.

I think things got worse last week. The Fed says it’s going to keep rates high throughout 2023 and the bond market isn’t buying it. The result is another generational anomaly. The more troubling number, however, didn’t even come from the jobs report. There’s a lot of downside risk here despite what equities did on Friday.