Weekly Risk Signals

There could mean relatively little movement for equities, but I’m a little more worried about what we’re seeing in the bond market right now. Long-term Treasury yields continue to move higher, which could be signaling investor concern over the path of inflation. While the U.S. economy is still in relatively good shape, it’s impossible to ignore some of the credit risks that are emerging.

The Fed created a “December surprise” for the markets by signaling a more hawkish year ahead than expected. With the Fed unlikely to provide much monetary support and inflation trending in the wrong direction, investors may find the opportunities for risk assets in 2025 a little thinner. Overall, last week’s move is quite reminiscent of 2022 and there’s a decent chance that it gets worse before it gets better.

Last week’s major market averages masked some real underlying weakness in risk assets. The continued rally in gold prices in conjunction with a significant rise in long-term Treasury yields are symptomatic of the market's pricing in greater inflation risk. For this week, however, it’s all eyes on the Bank of Japan.