Weekly Risk Signals

Last week’s cooler than expected inflation report might prove to be a game changer for the markets. The Fed is no longer cutting rates because inflation has continued to normalize. It’s cutting to try to save the economy from falling into recession. Small-caps are the key to the market right now. It all depends on whether or not this is the real turn.

The story in the U.S. financial markets is still the same as it has been for most of 2024 - large-caps are performing well, mega-cap tech is performing better and everything else is lagging. I do, however, think that Treasuries and gold might be the re-emerging story though. I think the real catalyst is the labor market. It looks like it’s finally starting to crack here. As Treasury yields fall, it’ll be important to keep watching credit spreads.

Over the past several weeks, however, it remains a very fragmented market. Tech controlled the market pretty much on its own for two straight weeks and, while it’s backed off again lately, there’s nothing that’s really stepped up in its place. Overall, though, there’s still a real lack of breadth, few outperformers and a lot of questions surrounding where the markets are headed next. It looks like Japan is still the key market to watch.