Weekly Risk Signals

While market sentiment (including these signals) mostly remain positive and were no doubt boosted by last week’s tepid inflation data, this week has the potential to upend things again. The rhetoric surrounding tariffs has gone from aggressive to more measured in recent weeks, but expect it to get a lot of attention throughout the rest of this month and beyond. The other big event is the BoJ meeting late in the week.

The markets have gotten off to a rough start in 2025 and the signals are beginning to agree. Both the stock and bond markets have been spooked by a series of economic data pointing to 1) higher interest rates for longer and 2) the return of inflation. There hasn’t been a “shock” yet, so to speak, but there’s clearly a slow burn of conditions progressively signaling risk-off conditions. Politics may soon become a factor later this month.

All four signals are risk-on reflecting broadly positive market sentiment, but market action over the past couple of weeks raises some questions in the short-term. I had warned about a potential December surprise. It just came in the form of an unexpectedly hawkish tone from the Fed. That’s also resulted in a bit of a shakeup in the bond market that’s worth monitoring closely.