Weekly Risk Signals

Risk-off remains the dominant regime again this week as Treasuries, lumber/gold and utilities are all indicating a defensive undertone to this market. The persistent low volatility environment is still providing support to the major large-cap averages as are incredibly low credit spreads. Levels this low are typically the launch points for major volatility spikes when conditions are shifting negatively, but it could still take a while to play out.

The signals remain right where they have been over the past several weeks, not being fooled by the NVIDIA-fueled tech rally. That single stock propped up the S&P 500 and Nasdaq 100, but most of the market was down last week, continuing the trend of broader market weakness. While utilities and gold are taking a breather here, we shouldn’t sleep on the outperformance of long-term Treasuries here.

No changes to the signals again this week, but it must be emphasized again how well defensive assets continue to perform despite the S&P 500 and Nasdaq 100 touching new all-time highs. With investors still hanging on to hope of one or more rate cuts later this year, the markets seem to be acting as if there’s a safety net under risk asset prices. I do think the underperformance of cyclicals over the past few weeks might be telling.