Weekly Risk Signals

The Treasuries signal is starting to trend in the risk-on direction as yields move higher, but you just can’t ignore what’s going on with utilities. So which market is it really? The one where risk assets are in favor because the economy is still growing and the Fed is cutting rates or the one where the market’s most defensive sector is beating everyone else?

The China stimulus announcement was a game changer. It could ultimately be the key to achieving the global soft landing if the PBoC can pull it off. The lumber/gold signal flips back to risk-on this week. I wouldn’t consider lumber prices strong at the moment, but they have been trending in the right direction. I think the rise in long-term Treasury yields here is the correct one.

The markets decided to ignore the negative implication that comes with kicking off a rate cutting cycle with a larger half-point move and chose instead to view it as more fuel for a healthy economy. The signals continue to see it the other way, noting that the utilities, lumber/gold and Treasuries signals are all still risk-off even though the S&P 500 is at all-time highs. It seems like the Fed’s easing cycle might end up being a longer-term play.