Weekly Risk Signals

The markets continue shifting back in a risk-on direction, fueled by easing trade tensions, solid corporate earnings growth and resilience from the labor market. While reciprocal tariffs are on pause for the time being, any chance at a sustained push higher in risk asset prices will likely be predicated on that pause turning into permanence. If that remains the case, the next likely catalyst comes from deregulation.

The trade relationship with China is the one thing that the markets had considered a primary risk for triggering a recession. The 90-day pause isn’t necessarily a long-term solution, but in terms of purely a financial market reaction, it could be the catalyst for a short-term run for risk assets.

Short-term conditions have swung back to risk-on, which is consistent with the current narrative that peak trade war worries have topped out and there might actually be an opportunity for a rebound with any further easing. The data from the past week, however, tells a different story. The combination of GDP and the PCE price index has a very stagflationary look.