Weekly Risk Signals

The equities signals continue to indicate that risk-on behavior is in control, although the whipsawing of the utilities signal back and forth may be a signal for caution in and of itself. Perhaps the bond market is shifting away from an inflation focus and a flight to safety pulse is starting to get priced in. The market may be getting a little nervous here about what could happen in Japan.

Some of the market’s dormant sectors & asset classes, such as consumer staples, healthcare and Treasuries, are finally beginning to reawaken. We see that directly in the utilities and Treasuries signals both flipping to risk-off this week. The global uptick in inflation is likely to be a theme for at least the first half of 2025 and possibly beyond. The inflation uptick in Japan, however, is the most concerning.

All four signals remain risk-on for now, although we have seen some changes over the past two weeks. Long-term Treasury yields have yet to buckle, which could be a sign that inflation risk is getting priced in as a long-term issue. The biggest risk right now, in my opinion, is something that the signals may not pick up on - Japan.