Weekly Risk Signals

The complete reversal of sentiment last week leads me to believe that this is an oversold mean reversion trade. Did the narrative really change at all though? I don’t think so. We’re back to the point where the stock and bond markets are telling different stories. The Treasury yield curve continues to flatten.

It looks like conditions are continuing to deteriorate. Treasuries are a notoriously poor performing asset class during times of high inflation, something we’re seeing play out today. The big question that will remain throughout 2022 is how quickly global growth will slow. The key data point to watch here is credit spreads.

Market volatility remains high, but it’s far from a traditional risk-off environment. Treasuries, gold and utilities all scored big gains last week, but the current commodities rally is pulling lumber prices up with it. That makes the lumber/gold signal a little counterintuitive, but overall intermarket conditions suggest that investors are as bearish now as they have at any point in 2022.