Weekly Risk Signals

The big defensive shift that we’ve seen over the past couple of weeks is being confirmed by the signals with three of the four at the risk-off position. It’s not subtle either. If you’re judging the market objectively right now, there’s a lot that’s not to like at the moment.

Investors preparing for an extension of the risk-on environment that closed out 2023 may want to keep in mind that this could still be a massive bear market rally that gets rejected here and starts to turn lower. In about a week from today, we’ll be looking at a 3-year total return on the Russell 2000 of 0%. That’s not exactly the type of take-off you’d expect to see during a “new” bull market.

While the risk asset rally slowed down last week ahead of the Christmas holiday weekend, it certainly hasn’t stopped. Small-caps led large-caps again and appear to be staging a breakout. The strength in both Treasuries and gold here suggests there is still some potential vulnerability. We likely won’t see much volatility this week.