Weekly Risk Signals

The utilities and lumber/gold signals remain firmly in the risk-off position, reflecting the current rallies that are currently taking place in defensive assets. The one thing that’s been missing in recent weeks is broader participation from other risk-off peers. We’re starting to see that more now as consumer staples, value, low volatility and dividend stocks are all beginning to outperform the S&P 500.

I maintain that risk-off conditions are still firmly in control here despite the Treasury signal flipping this week (which has largely been a function of the re-acceleration of inflation more than anything else). I fear that last week’s jobs report is going to create a false sense of optimism for investors. The high level macro picture just got worse.

Last week might have been a decisive win for risk assets, but the signals are showing no changes in cautious sentiment. The biggest catalyst for volatility right now remains the currency crisis happening in Japan. Current competing forces suggest a complete lack of handle on the current situation and could be a big volatility trigger in the near-term.