Weekly Risk Signals

The signals continue to suggest that conditions are mixed. The short-term still looks relatively risk-on as utilities and Treasuries start to underperform, but the strength in gold is dominating the medium-term outlook. We’ll get some big catalysts over the next few weeks. Big tech earnings will hit in full force this coming week and the presidential election the week after that.

The two most important asset classes, in my opinion, remain utilities and gold. Investors are treating this as a strong risk-on environment and utilities are straight-up disagreeing with them. Granted, gold has a long-term zero correlation with equities, but should that logically happen when investors are so bullish on risk assets? We shouldn't be sleeping on inflation risk.

Last week’s jobs report should serve as a reminder that the inflation problem isn’t yet “fixed” and could still pose problems for the economy in the future. Right now, the markets seem to be in a “safe” spot, meaning that the economic data is generally positive while the Fed is leaning towards further easing. The markets are being heavily influenced by either QE or the prospect of further QE. The next couple weeks could get interesting.