Weekly Risk Signals

The markets are effectively in wait-and-see mode until the August inflation report hits on 9/13. At this point, even a below expectations inflation report might not do a whole lot for risk assets. The worst case scenario would be the August number failing to build on July’s momentum, which would probably open the door for a retest of the June low.

The risk asset markets look like they might be on the ropes a bit here. Powell’s comment about consumers and businesses feeling “pain” is a tacit admission that the central will allow a recession or bear market if it means getting inflation back under control. Government bond yields actually fell on the long end, indicating that investors might now be bracing themselves for recession.

As investors remain largely focused on risk assets, utilities have quietly emerged as the market’s strongest sector. Everybody expects a dovish Fed pivot coming soon, but there’s almost no market signal right now that suggests it’s coming. This still looks like a bear market rally and Treasuries are still struggling to get going here.